You Earned It, You Keep It Act

Summary

Eliminates federal income taxation of Social Security benefits going forward and requires the Treasury to reimburse Social Security and Railroad Retirement trust funds (and the Medicare Hospital Insurance trust fund) for lost transfers caused by that repeal. It also changes which wages are subject to Social Security payroll taxes by narrowing the existing exclusion that excludes pay after an employee reaches the annual contribution base, adds an employer-level $250,000 threshold for that exclusion, and creates carryover rules between successor and predecessor employers. Finally, it adds a new 2% bend point to the Social Security benefit formula so earnings above $250,000 (or above the contribution base, if higher) count for benefit computation for people who first become eligible after 2025, while protecting means-tested programs from counting the higher benefit for eligibility purposes. The bill affects retirees (current and future), high earners and their employers, Social Security and Medicare trust funds, and federal finances. It expands payroll-tax coverage on certain high earnings, increases future Title II benefits for newly eligible high earners, removes taxation of benefits, and creates an open-ended Treasury reimbursement to trust funds to offset revenue changes from the tax repeal. Effective dates: removal of taxation of benefits applies for taxable years beginning after enactment; payroll-tax and benefit formula changes apply for calendar years after 2025 and affect people who first become eligible after 2025.

• Removes federal income tax on Social Security benefits for taxable years after enactment and directs Treasury to reimburse trust funds for reduced transfers.
• Modifies the statutory definition of "wages" so some high earnings that were previously excluded from Social Security payroll taxes can become taxable, with a new employer-level $250,000 threshold and successor-employer carryover rules.
• Adds a 2% bend point to the Social Security benefit formula to count earnings above $250,000 (or above the contribution base if higher) for people who first become eligible after 2025.
• Payroll-tax and benefit formula changes apply to calendar years after 2025; repeal of benefit taxation applies for taxable years beginning after enactment.
• Increases administrative complexity for employers and SSA (tracking employer-level thresholds and predecessor/successor payments).
• Protects SSI, Medicaid, and CHIP means-testing from counting the new, higher Title II benefits when determining eligibility.
• Creates an open-ended appropriation from Treasury general funds to make trust funds whole for any lost transfers caused by repealing taxation of benefits.
• Affects high earners and their employers directly; current beneficiaries gain immediate tax relief; future very-high-earner beneficiaries gain modestly higher benefits.