A bill to amend the Internal Revenue Code of 1986 to apply inflation adjustments to the additional hospital insurance tax on high income taxpayers.
- Sponsor
- Sen. Kennedy, John [R-LA]
- Committees
- Finance Committee (primary)
- Last action
- Jul 22, 2026
Bottom line
S. 5085 would index the income thresholds for the additional Medicare tax to inflation, effectively raising the income level at which high-income taxpayers begin paying the extra 0.9% tax.
What it actually does
This bill amends the Internal Revenue Code of 1986 to introduce inflation adjustments for the income thresholds at which the additional 0.9% Hospital Insurance (Medicare) tax applies to high-income taxpayers. Starting in calendar year 2027, the current fixed thresholds of $200,000 for single filers and $125,000 for married filing separately (and corresponding self-employment income thresholds) would be indexed to inflation, using 2025 as the base year. This change would prevent more taxpayers from being subjected to the additional tax solely due to inflation eroding the real value of the fixed thresholds.
Proponents argue
Supporters argue that failing to index tax thresholds to inflation results in "bracket creep," where taxpayers are pushed into higher tax brackets or subject to additional taxes not because their real income has increased, but because inflation has eroded the value of money. Indexing these thresholds, proponents contend, ensures that the additional Medicare tax only applies to genuinely higher real incomes, maintaining fairness and preventing an unintended tax increase on a broader base of taxpayers over time.
Opponents contend
Opponents might argue that indexing these thresholds would reduce federal revenue, potentially impacting the solvency of the Medicare trust fund or requiring cuts to other programs. They may also contend that the additional Medicare tax was specifically designed to apply to a broader segment of higher earners over time to ensure adequate funding for healthcare, and indexing would undermine this intent, disproportionately benefiting wealthier individuals.
The bill is very short and straightforward, making it highly accessible for any reader to understand its core purpose quickly.
Section 1(a) and Section 1(b)
Inflation Adjustment for Additional Hospital Insurance Tax Thresholds
This provision mandates that the income thresholds for the additional 0.9% Hospital Insurance (Medicare) tax be adjusted annually for inflation, beginning in 2027. Currently, these thresholds are fixed at $200,000 for single filers and $125,000 for married individuals filing separately (with a $250,000 threshold for married filing jointly, which is not explicitly mentioned in the bill's targeted sections but is part of the overall structure). The adjustment will use a cost-of-living index, with 2025 serving as the base year, and amounts will be rounded to the next highest multiple of $1,000.
Supporters argue
Supporters argue that indexing tax thresholds to inflation is a fundamental principle of fair tax policy, preventing taxpayers from being penalized by "stealth" tax increases due to rising prices rather than increased real income. They contend it maintains the original intent of the additional Medicare tax to target genuinely high earners, rather than gradually expanding its reach to middle- and upper-middle-income individuals over time.
Critics contend
Critics might argue that this provision would primarily benefit the wealthiest taxpayers by reducing their future tax burden, potentially exacerbating income inequality. They may also express concern that any reduction in Medicare tax revenue could weaken the financial stability of the Medicare program, especially given ongoing demographic challenges and rising healthcare costs.
Tradeoffs
The bill balances the principle of tax fairness (preventing bracket creep) against the need for federal revenue, particularly for the Medicare Trust Fund. It also highlights a tension between maintaining the real value of tax thresholds for taxpayers and ensuring a stable or growing revenue stream for social programs.