You Earned It, You Keep It Act

Bill Summary: You Earned It, You Keep It Act (S 2716)

Overview

The You Earned It, You Keep It Act is a legislative proposal aimed at fundamentally changing how Social Security benefits are taxed and how high-income earnings are treated for both payroll tax contributions and future benefit calculations. The bill's primary purpose is to eliminate the federal income tax on Social Security benefits while simultaneously increasing the taxable cap on earnings to ensure the long-term solvency of the Social Security trust funds.

Key Provisions

1. Elimination of Income Tax on Social Security Benefits

The bill amends the Internal Revenue Code to terminate the inclusion of Social Security benefits in an individual's gross income. Effectively, this would make Social Security benefits exempt from federal income tax for all taxpayers starting after the date of enactment.

2. Increase of the Social Security Taxable Earnings Cap

Currently, Social Security payroll taxes only apply to income up to a certain annual limit (the "contribution and benefit base"). This bill modifies that structure for years after 2025:
* New Ceiling: It establishes a higher threshold of $250,000.
* Tax Application: Payroll taxes will now apply to earnings above the standard contribution base, up to a maximum of $250,000.
* Scope: This apply to both traditional wages (employees) and self-employment income.
* Multiple Employers: To prevent "under-taxing" individuals who work multiple jobs, the bill creates a special tax rule to ensure that the total aggregate income from all employers up to $250,000 is taxed correctly.

3. Enhanced Benefit Formulas for High Earners

To ensure that those paying more into the system also receive a proportional return, the bill adjusts the benefit formula:
* Increased Benefits: Earnings above $250,000 will now be factored into the determination of a retiree's Primary Insurance Amount (PIA).
* Specific Percentage: It adds 2% of an individual’s "excess average indexed monthly earnings" to their benefit calculation.
* Eligibility: This applies to individuals who become eligible for benefits or pass away after 2025.

4. Trust Fund and Indexing Protections

• Hold Harmless Provision: The bill mandates that the Treasury provide funds to Social Security and Railroad Retirement trust funds to compensate for any immediate revenue losses resulting from the tax exemption on benefits.
• Wage Index Adjustments: The bill introduces specific percentage increases to the national average wage index (0.7%–0.9%) between 2026 and beyond to help stabilize the system.

Who Is Affected?

Timeline and Procedural Status

• Effective Date: Most provisions regarding taxable wages and self-employment income are set to take effect for calendar years after 2025.
• Current Status: Introduced in the Senate on September 4, 2025, and referred to the Committee on Finance.