Overview

Title

To amend the Internal Revenue Code of 1986 to repeal the inclusion in gross income of social security benefits, and for other purposes.

ELI5 AI

H.R. 7084 is a law proposal that wants to stop taxes on money from Social Security and change some rules, so people get to keep more of their money when they earn a lot. It also tries to make sure people on special programs like Medicaid and SSI don't get hurt by these changes.

Summary AI

H.R. 7084, also known as the "You Earned It, You Keep It Act," aims to change how Social Security benefits are taxed and calculated. The bill proposes repealing the tax on Social Security benefits and adjusting how wages and self-employment income above certain limits are considered for Social Security contributions. It also seeks to adjust the Social Security benefit formula to include higher earnings, while ensuring that individuals on Supplemental Security Income (SSI), Medicaid, and the Children's Health Insurance Program (CHIP) are not negatively impacted by these changes. These amendments are set to take effect for incomes and earnings beginning in 2025.

Published

2024-01-25
Congress: 118
Session: 2
Chamber: HOUSE
Status: Introduced in House
Date: 2024-01-25
Package ID: BILLS-118hr7084ih

Keywords AI

social security benefits tax repeal internal revenue code ssi medicaid chip federal revenue impact benefit formula adjustment taxation of benefits income threshold legislation impact wages and self-employment income

Sources

Bill Statistics

Size

Sections:
5
Words:
3,821
Pages:
18
Sentences:
58

Language

Nouns: 1,006
Verbs: 247
Adjectives: 211
Adverbs: 23
Numbers: 203
Entities: 201

Complexity

Average Token Length:
4.00
Average Sentence Length:
65.88
Token Entropy:
5.12
Readability (ARI):
33.75

AnalysisAI

The proposed legislation in question seeks to amend the Internal Revenue Code of 1986. Introduced as H. R. 7084, or the "You Earned It, You Keep It Act," the bill's primary objective is to eliminate the taxation of Social Security benefits on individuals. Additionally, it introduces several changes to the way wages and self-employment incomes are calculated for tax purposes and modifies the framework for determining Social Security benefits with respect to higher income levels.

General Summary

H. R. 7084 aims to make substantial changes to existing tax policies concerning Social Security benefits and income taxation thresholds. The repeal of taxing Social Security benefits is expected to simplify financial burdens for those receiving these benefits. It seeks to adjust the calculations associated with a person's income, especially concerning incomes exceeding $250,000, and alters the formulas used in computing Social Security benefits based on these earnings.

Significant Issues

Repeal of Taxation on Social Security Benefits
The bill proposes to stop including Social Security benefits in an individual's taxable income. However, the removal of this revenue source could strain federal finances, potentially impacting other social services. Moreover, there is a lack of clarity on the effective date of this provision, leaving room for potential confusion.

Complex Technical Language
The language of the bill, particularly in Sections 3 and 4, is intricate and may be difficult for those without specialized knowledge to interpret. This complexity could lead to misunderstandings and misapplication of the new rules among taxpayers and tax professionals alike.

Changes to Income Thresholds
The legislation sets new income thresholds and rules for earnings over $250,000, affecting both wage earners and the self-employed. These adjustments could result in significant changes to tax liabilities, yet the rationale and long-term implications of these changes are not clearly explained.

Impact on Social Security Benefits
The bill proposes to adjust the Social Security benefit formula to consider "excess earnings" beyond the $250,000 threshold. This could lead to higher benefits for some individuals but includes calculations that may not be straightforward, potentially complicating future benefit predictions for retirees.

Public Impact

The legislation is positioned to provide financial relief to Social Security recipients by exempting their benefits from income taxation. This could improve the disposable income of many, particularly seniors, thus enhancing their financial stability. However, the impact on federal revenue and the sustainability of Social Security trust funds is uncertain, especially given the potential reduction in funds without explicit offset strategies.

Impact on Stakeholders

Beneficiaries of Social Security
Removing the taxation of benefits might increase the net income for current and future beneficiaries, who would directly benefit from this change. Conversely, if not effectively managed, reduced federal revenue could indirectly affect the long-term viability of Social Security programs.

Taxpayers with High Incomes
For high earners, the changes in how wages and self-employment income over $250,000 are taxed could affect their tax planning and liability significantly, potentially increasing their contribution to Social Security systems due to new earnings considerations in benefit calculations.

Federal and State Agencies
Agencies managing Social Security, Medicaid, and related programs might face increased administrative burdens. Ensuring that changes are properly implemented and communicated will require additional resources and coordination between federal and state levels to maintain beneficiary protections as specified in the bill.

Overall, while the "You Earned It, You Keep It Act" presents potential financial relief and simplifies some retirement income-related taxes, it introduces complexities and uncertainties that call for careful consideration and implementation to avoid unintended consequences on both beneficiaries and public fiscal health.

Financial Assessment

The "You Earned It, You Keep It Act," or H.R. 7084, proposes substantial financial changes to the treatment of Social Security benefits and related income. The bill outlines modifications to how Social Security contributions and benefits are assessed, especially concerning higher earnings. Here is an analysis focusing on the financial aspects and how they relate to the issues identified.

Repeal of Taxation on Social Security Benefits

The bill intends to repeal the taxation of Social Security benefits, which were previously included in gross income. This change would inevitably impact federal revenue significantly. The issue here is the potential financial ramifications such as effects on federal deficits or the financing of federal programs that have historically relied on these funds. The bill mentions that the Social Security trust funds will be held harmless, which implies some form of financial compensation to these funds. However, the exact mechanism or financial details on how this holding harmless will occur are not clearly explained, creating concerns about transparency and accountability.

Adjustments to Wage and Income Calculations

Section 3 introduces adjustments on how wages and self-employment income exceeding $250,000 are considered post-2024. This section opposes the previous limitations by potentially increasing the contribution for higher earners. The complexity of these changes could lead to challenges in understanding and compliance, especially without expertise in tax law. Although the intent is to broaden the contribution base, there is a lack of clarity on the rationale behind setting the $250,000 threshold.

The amendments also modify the calculation of self-employment income for tax purposes. This involves noting different bases and thresholds that significantly influence an individual's taxable income calculation. These intricacies emphasize the necessity for individuals and organizations to thoroughly comprehend and adequately prepare for compliance.

Social Security Benefit Formula Changes

The bill proposes to include earnings over $250,000 in the Social Security benefit formula, introducing calculations for "excess wages" and altering the primary insurance amounts. The inclusion of high earnings aims to adjust benefits more proportionately to the contributions made by higher earners. However, this change involves complex definitions and calculations that might complicate financial planning for those nearing retirement. There is a need for effective communication to ensure beneficiaries understand these implications.

Impact on Government Programs

An essential aspect of the bill is to ensure that beneficiaries of programs like SSI, Medicaid, and CHIP are not adversely affected by these adjustments. However, the manner and consistency of this protection across programs are not explained comprehensively. While the protection intent is outlined, clear methodologies for safeguarding these groups from financial disadvantages due to the proposed changes remain unspecified. This lack of clarity might raise concerns about the equitable application of these protections.

Conclusion

Overall, the financial allocations and adaptations proposed by the "You Earned It, You Keep It Act" involve substantial restructuring in terms of contributions, benefits, and fiscal protections. However, the existing ambiguities and complexity in these financial references could lead to challenges in implementation and compliance, warranting a careful review and possibly further clarification to ensure the intended financial transparency and balance are achieved.

Issues

  • The repeal of the inclusion in gross income of Social Security benefits in Section 2 could have a significant financial impact on federal revenue and the deficit. This issue is particularly important as it pertains to the broader fiscal health of the government and potential impacts on other federal programs that rely on these funds.

  • The lack of clarity and ambiguity in Section 2 regarding the exact date of the 'Termination' of Section 86 of the Internal Revenue Code could lead to confusion among taxpayers and complicate the implementation of this provision.

  • Section 2's provisions for 'Social Security trust funds held harmless' are complex and lack detailed explanations of the fiscal impact and mechanisms of fund allocation, raising concerns about transparency and accountability in how public funds are managed.

  • The technical and complex language used in Section 3 regarding the determination of wages and self-employment income above the contribution and benefit base after 2024 might make it difficult for individuals to understand without legal or tax code expertise, potentially leading to misinterpretation or noncompliance.

  • The inclusion of earnings over $250,000 in the Social Security benefit formula in Section 4 introduces complex calculations and definitions that could impact Social Security beneficiaries significantly, especially those close to retirement, raising concerns over transparency and effective communication of changes.

  • The bill's lack of transparency in explaining why the taxation of Social Security benefits is being repealed in Section 2 does not provide a clear rationale for stakeholders, which is crucial in assessing the intent and potential impacts of the legislation.

  • Section 3's amendment to the national average wage index and its scheduled increase percentages lack context or justification, raising questions about the rationale behind these specific increments and their impact on benefit calculations.

  • Section 4 refers to holding SSI, Medicaid, and CHIP beneficiaries harmless but lacks clarity on how this will be consistently applied, which is crucial for ensuring beneficiaries' protections across different programs.

  • The provisions in Section 4 regarding eligibility criteria based on amendments could create uncertainty for individuals approaching retirement, particularly concerning the transition year of 2025, impacting their financial planning and benefits.

Sections

Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.

1. Short title Read Opens in new tab

Summary AI

The first section of this act specifies its short title: it is called the “You Earned It, You Keep It Act.”

2. Repeal of inclusion in gross income of Social Security benefits Read Opens in new tab

Summary AI

The bill repeals the inclusion of Social Security benefits in taxable income starting from the date it becomes law. It also ensures that the Social Security and Railroad Retirement trust funds won't lose money by covering any reductions with funds from the Treasury.

3. Determining wages and self-employment income above contribution and benefit base after 2024 Read Opens in new tab

Summary AI

The section outlines changes to how wages and self-employment income above certain thresholds are treated for tax purposes after 2024. It specifies that for both employees and self-employed individuals, income thresholds are set at $250,000 for determining additional taxes or exemptions, and also addresses adjustments to calculations involving the national average wage index and special rules for individuals with multiple employers.

Money References

  • — (A) REPEAL OF PRESENT LAW LIMITATION.—Section 3121(a) of the Internal Revenue Code of 1986 is amended by striking paragraph (1). (B) LIMITATION ON AMOUNT OF WAGES.—Section 3121 of the Internal Revenue Code of 1986 is amended by adding at the end the following: “(aa) Limitation on amount of wages.— “(1) IN GENERAL.—In the case of any calendar year in which the contribution and benefit base (as determined under section 230 of the Social Security Act) is less than $250,000, for purposes of the taxes imposed by sections 3101(a) and 3111(a), the term ‘wages’ does not include that part of the remuneration which, after remuneration equal to such contribution and benefit base with respect to employment has been paid to an individual by an employer during the calendar year with respect to which such contribution and benefit base is effective, is paid to such individual by such employer during the calendar year.
  • The preceding sentence shall not apply to that part of the remuneration paid to an individual after remuneration of $250,000 with respect to employment has been paid to such individual by an employer (or any person related to, or acting on behalf of, such employer, as determined by the Secretary) during the calendar year.
  • — (i) IN GENERAL.—Section 3231(e)(2)(A) of the Internal Revenue Code of 1986 is amended by adding at the end the following new clause: “(iv) LIMITATION ON EXCLUSION.—For purposes of so much of the taxes imposed by sections 3201(a), 3211(a), and 3221(a) as are determined by reference to the rate in effect under section 3101(a) or 3111(a)— “(I) in the case of any calendar year in which the contribution and benefit base (as determined under section 230 of the Social Security Act) is less than $250,000, clause (i) shall not apply to that part of the remuneration paid to an individual after remuneration of $250,000 for services rendered as an employee has been paid to such individual by an employer (or any person related to, or acting on behalf of, such employer, as determined by the Secretary) during the calendar year, and “(II) in the case of any calendar year in which such contribution and benefit base equals or exceeds $250,000, clause (i) shall not apply.”.
  • (2) AMENDMENT TO THE SOCIAL SECURITY ACT.—Section 209(a)(1)(I) of the Social Security Act (42 U.S.C. 409(a)(1)(I)) is amended by inserting before the semicolon at the end the following: “except that this subparagraph shall apply only to calendar years for which the contribution and benefit base (as so determined) is less than $250,000, and, for such calendar years, only to the extent that remuneration with respect to employment paid to such employee does not exceed $250,000”.
  • term ‘self-employment income’ means the net earnings from self-employment derived by an individual, except that such term shall not include net earnings from self-employment if such net earnings for the taxable year are less than $400.
  • “(2) LIMITATION ON OASDI TAX.—For purposes of section 1401(a), the term ‘self employment income’ shall not exceed the sum of— “(A) the total compensation not in excess of the contribution and benefit base (as determined under section 230 of the Social Security Act) which is effective for the calendar year in which such taxable year begins, reduced by the amount of wages not in excess of such base paid to such individual during the taxable year, plus “(B) the total compensation in excess of the greater of— “(i) $250,000, or “(ii) the amount of wages paid to such individual during the taxable year. “(3) DEFINITION AND SPECIAL RULES.
  • — (A) IN GENERAL.—Section 211(b)(1) of the Social Security Act (42 U.S.C. 411(b)) is amended— (i) in subparagraph (I)— (I) by inserting “and before 2025” after “1974”; and (II) by striking “or” at the end; and (ii) by adding at the end the following: “(J) For any taxable year beginning in any calendar year after 2024, an amount equal to— “(i) $250,000, reduced (but not below zero) by “(ii) the sum of— “(I) the part of the net earnings from self-employment (if any) which is not in excess of— “(aa) the amount equal to the contribution and benefit base (as determined under section 230) which is effective for the calendar year in which such taxable year begins, minus “(bb) the amount of the wages paid to such individual during such taxable year, plus “(II) the amount of the wages paid to such individual during such taxable year which is in excess of the amount in subclause (I)(aa); or”. (B) PHASEOUT.—Section 211(b) of the Social Security Act (42 U.S.C. 411(b)) is amended by adding at the end the following: “Paragraph (1) shall apply only to taxable years beginning in calendar years for which the contribution and benefit base (as determined under section 230) is less than $250,000.”.
  • (c) Special rule for wages from multiple employers which total in excess of $250,000.

3103. Special rules for remuneration from multiple employers Read Opens in new tab

Summary AI

Employees who earn wages from more than one employer in a year may have to pay additional taxes if the total tax they would have owed from one employer is higher than the combined amount they actually paid. The section also specifies that a refund credit only applies if the total tax owed is more than what was paid, and it limits the credit to that excess.

4. Including earnings over $250,000 in Social Security benefit formula Read Opens in new tab

Summary AI

The section of the bill proposes adjustments to the Social Security benefit formula by including earnings over $250,000 in the calculation of benefits. It defines terms such as "basic wages" and "excess earnings" and specifies that these amendments will affect individuals eligible for benefits after 2024, while ensuring that this change does not negatively impact beneficiaries of SSI, Medicaid, and CHIP.

Money References

  • SEC. 4.Including earnings over $250,000 in Social Security benefit formula.
  • (a) Inclusion of earnings over $250,000 in determination of primary insurance amounts.—Section 215(a)(1)(A) of the Social Security Act (42 U.S.C. 415(a)(1)(A)) is amended— (1) in clause (ii), by striking “and” at the end; (2) in clause (iii), by inserting “and” at the end; and (3) by inserting after clause (iii) the following: “(iv) 2 percent of the individual’s excess average indexed monthly earnings (as defined in subsection (b)(5)(A)).”. (b) Definition of excess average indexed monthly earnings.—Section 215(b) of the Social Security Act (42 U.S.C. 415(b)) is amended— (1) by striking “wages” and “self-employment income” each place such terms appear and inserting “basic wages” and “basic self-employment income”, respectively; and (2) by adding at the end the following: “(5)(A) An individual's excess average indexed monthly earnings shall be equal to the amount of the individual's average indexed monthly earnings that would be determined under this subsection by substituting ‘excess wages’ for ‘basic wages’ and ‘excess self-employment income’ for ‘basic self-employment income’ each place such terms appear in this subsection (except in this paragraph).
  • “(ii) the term ‘basic self-employment income’ means that portion of the self-employment income of an individual credited to a year that does not exceed an amount equal to the contribution and benefit base for the year minus the amount of the wages paid to the individual in the year; “(iii) the term ‘excess wages’ means that portion of the wages of an individual paid in a year after 2024 in excess of the higher of $250,000 or the contribution and benefit base for the year; and “(iv) the term ‘excess self-employment income’ means that portion of the self-employment income of an individual credited to a year after 2024 in excess of the higher of $250,000 or such contribution and benefit base for the year.”