H.R. 3271: Medicare and Social Security Fair Share Act

This bill, known as the Medicare and Social Security Fair Share Act, proposes amendments to the Internal Revenue Code to increase funding for Social Security and Medicare. Here’s a breakdown of what the bill entails:

Modification of Payroll Taxes

The bill modifies the existing payroll taxes that fund Social Security. The key changes include:

• Wage Base Adjustment: The bill raises the threshold for the wage base on which Social Security taxes are applied. Specifically, it states that for individuals earning above $400,000 in a calendar year, the portion of their salary exceeding this amount will be subject to Social Security taxes.
• Additional Taxes on High Earners: There will be a new tax rate of 1.2% on income above $400,000 for individuals, with slightly different thresholds for joint filers and married taxpayers filing separately.

Modification of Taxes on Self-Employment Income

Changes are also made regarding self-employment income. These include:

• Higher Tax Thresholds: Similar to the wage base adjustment, self-employed individuals earning over $400,000 will see an increased tax burden on the income above this threshold.
• Further Additional Tax: Self-employed individuals will also face a new 1.2% tax on income that exceeds certain limits, which mirrors the adjustments for wage earners.

Changes to Taxes on Unearned Income

The bill also proposes modifications to the taxation of unearned income:

• Increased Rates for High Income Individuals: For taxpayers with modified adjusted gross incomes exceeding specified thresholds (generally $400,000, or $500,000 for joint filers), an additional tax will be levied on net investment income and specified net income.
• Higher Tax Rates for Trusts and Estates: The tax rate applied to trusts and estates will increase from 3.8% to 17.4% on income exceeding the thresholds.

Transfer of Revenues

The bill specifies how additional revenue from these increased taxes will be allocated:

• Funding for Trust Funds: A portion of the revenue generated from the new taxes will be transferred to various Social Security and Medicare trust funds, ensuring that these programs remain solvent and adequately funded.

Effective Dates

The amendments introduced by this bill are set to take effect starting January 1 of the first calendar year following its enactment, with certain provisions relating to investment income and its distributions beginning after December 31, 2025.

Relevant Companies

• None found