No Tax on Social Security

Summary

Ends federal taxation of Social Security benefits for tax years beginning after the law takes effect, so Social Security payments would no longer be included in adjusted gross income. To offset the resulting drop in receipts to trust funds, the Treasury would pay each affected Social Security, Medicare Hospital Insurance, and Railroad Retirement fund an amount equal to the reduction in transfers for each fiscal year. The change would lower tax bills for many Social Security recipients and simplify tax filing for those beneficiaries, while increasing direct federal outlays because general revenues would replace the lost transfers to the trust funds.

• Removes Social Security benefits from federal adjusted gross income for tax years after enactment.
• Treasury must annually reimburse Social Security, Medicare HI, and Railroad Retirement funds for any lost transfers caused by the tax change.
• Most Social Security recipients will pay less federal income tax or none on their benefits, depending on other income sources.
• The law increases federal outlays because general revenue payments replace the transfer amounts that would have gone to the trust funds under current rules.
• IRS forms, withholding rules, and tax-prep processes would need updates to reflect the exclusion of Social Security from taxable income.
• May affect eligibility or benefit amounts for programs and credits that use AGI as an eligibility measure, since AGI would be lower for affected taxpayers.
• Does not cut trust fund receipts net of reimbursements, but shifts funding responsibility to the Treasury's general funds.
• Effective for taxable years beginning after the date of enactment.