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Repeals the federal rule that sometimes taxes Social Security benefits, so Social Security and Railroad Retirement benefits would no longer be included in gross income for income-tax purposes for taxable years after enactment. It also changes how Social Security payroll taxes (OASDI) apply beginning after 2025 by exempting wages between the current contribution-and-benefit base and $250,000 from OASDI for many workers, while keeping wages above $250,000 subject to OASDI; adds special rules for multiple employers and self-employment; and requires Treasury to make up any reduced trust-fund transfers caused by the repeal. For future beneficiaries who first become eligible after 2025, the bill adds a small benefit credit (2% factor) for earnings above $250,000 when computing the primary insurance amount, and it protects means-tested programs by capping the Title II benefit used for SSI, Medicaid, and CHIP eligibility at the pre-enactment calculation. Effective dates vary: the income-tax repeal applies to taxable years after enactment; payroll and benefit-rule changes start in calendar/tax years after 2025 or beginning 2026 as specified.
The bill increases after-tax income for many Social Security beneficiaries and simplifies or prevents some payroll over-withholding for workers, while preserving means-tested program eligibility, but it reduces federal revenues, shifts costs to the general Treasury, and creates new compliance burdens and longer-term fiscal risks for trust funds and program solvency.
Seniors and other Social Security beneficiaries would keep more of their benefits because Social Security income would no longer be included in taxable gross income for post-enactment years, increasing their after-tax income and simplifying tax treatment.
Social Security, Railroad Retirement, and Medicare Part A trust funds would be held harmless via annual appropriations to offset reduced transfers, preserving benefit funding streams and protecting beneficiary payments in the near term.
Workers with annual earnings below $250,000 (including many middle-class workers with multiple employers) would avoid extra OASDI taxation later in the year because employer withholding would be reconciled, reducing over-withholding and overall payroll tax burden for most employees.
Taxpayers broadly would face reduced federal income tax receipts because Social Security benefits would no longer be taxable, potentially increasing the federal deficit or requiring spending cuts or revenue offsets elsewhere.
The bill shifts fiscal burden from payroll-tax-funded trust funds to the general Treasury via appropriations, meaning all taxpayers could finance shortfalls instead of beneficiaries or payroll contributors, raising equity concerns.
If annual appropriations are relied on over time or are reduced, Medicare Part A, Railroad Retirement, and Social Security could face greater long-term fiscal pressure and political risk to benefit funding and solvency.
Introduced September 4, 2025 by Ruben Gallego · Last progress September 4, 2025