Sponsor
John Neely Kennedy
Senator · R-LA
Senator · R-LA
The bill protects wage earners and the self‑employed from unexpected Medicare payroll‑tax increases by indexing and automating threshold adjustments, at the cost of modest long‑term revenue loss, some administrative transition costs, and distributional effects that slightly favor higher earners.
Middle‑income wage earners: wages below the adjusted thresholds will avoid being pushed into the additional 0.9% Medicare payroll tax because thresholds will rise with inflation, reducing unexpected tax increases for many households.
Self‑employed individuals and small business owners: higher, inflation‑adjusted thresholds for the 0.9% additional Medicare portion of self‑employment tax prevent bracket creep as incomes rise.
Taxpayers and administrators: making threshold adjustments automatic and formulaic reduces the need for repeated Congressional fixes and simplifies IRS administration of payroll tax thresholds over time.
All taxpayers / federal budget: indexing thresholds to inflation reduces long‑term payroll tax revenue relative to static thresholds, which could modestly widen budget deficits or reduce funding available for other programs.
Higher earners and distributional fairness: rounding each adjusted threshold up to the next $1,000 can create larger step increases that disproportionately benefit higher earners versus gradual cost‑of‑living increases.
Taxpayers, small businesses and payroll processors: implementing the change requires IRS rulemaking and systems updates (targeted to 2027), imposing administrative costs and transitional complexity for payroll withholding and self‑employment tax calculations.
Based on analysis of 1 section of legislative text.
Requires annual COLA indexing (starting after 2026) of dollar thresholds that trigger the additional 0.9% Medicare payroll and self‑employment taxes, rounding adjusted amounts to the next $1,000.
Official title: Amend the Internal Revenue Code of 1986 to apply inflation adjustments to the additional hospital insurance tax on high income taxpayers.
Introduced July 22, 2026 by John Neely Kennedy · Last progress July 22, 2026
Requires automatic annual cost‑of‑living adjustments, beginning after 2026, to the dollar thresholds that trigger the additional 0.9% Medicare payroll tax on wages and the additional 0.9% Medicare self‑employment tax on net earnings. Adjustments follow the existing section 1(f)(3) COLA formula (with specified base years), round up to the next $1,000, and apply by calendar year for wages and by taxable year for self‑employment income. The change updates how the thresholds are adjusted annually so they keep pace with inflation, reducing the number of taxpayers who would move into the additional‑tax range only because of inflation rather than higher real earnings. The provision is effective for calendar or taxable years beginning after 2026.