S. 5085: To amend the Internal Revenue Code of 1986 to apply inflation adjustments to the additional hospital insurance tax on high income taxpayers.

This bill would change how the additional hospital insurance tax applies to higher-income taxpayers by making its income thresholds rise with inflation after 2026.

What the tax is

The hospital insurance tax is part of Medicare payroll taxes. This bill focuses on the additional Medicare tax that already applies to wages and self-employment income above certain dollar amounts for higher earners.

What would change

• For employees, the income thresholds used to determine when the additional hospital insurance tax applies would be increased each year for inflation starting in 2027.
• For self-employed people, the same kind of inflation adjustment would be made to the thresholds used for the self-employment version of the tax.
• The adjustment would be based on a cost-of-living formula tied to inflation, using 2025 as the reference year.
• If the adjusted threshold is not a multiple of $1,000, it would be rounded up to the next $1,000.

Practical effect

Right now, the income levels that trigger this extra tax are set in fixed dollar amounts. Under this bill, those amounts would no longer stay fixed forever. Instead, they would move upward over time with inflation, which could mean fewer people are pulled into the tax just because wages and prices rise over time.

Who would be affected

The bill would mainly affect people with higher wages or self-employment income, since it changes the income thresholds for the extra Medicare payroll tax. Employers and self-employed taxpayers would need to apply the updated thresholds once they take effect.

Relevant Companies

None found