Medicare and Social Security Fair Share Act
- Bill Number
- S. 1690
- Origin Chamber
- Senate
- Congress
- 119th Congress, Session 1
- Policy Area
- Taxation
- Status
- Introduced
- Latest Action
- 2025-05-08: Read twice and referred to the Committee on Finance.
- Last Updated
- 2025-12-05T21:53:14Z
AI-Generated Summary
Purpose
The Medicare and Social Security Fair Share Act (S. 1690) aims to boost funding for Social Security and Medicare programs by increasing taxes on high-income earners. It does this through changes to payroll taxes, self-employment taxes, and taxes on investment income, directing the new revenue to the trust funds that support these programs. The goal is to ensure these entitlement programs (government benefits for retirees, disabled individuals, and healthcare for seniors) remain solvent longer by making higher earners contribute more proportionally.
Key Provisions
- Social Security Payroll Tax Changes:
- Raises the wage cap for Social Security taxes (currently tied to a "contribution and benefit base," around $168,600 in recent years) to $400,000 per year for most workers. Wages between the current base and $400,000 become taxable if the base is below $400,000.
- Applies to employee and employer contributions under the Federal Insurance Contributions Act (FICA).
- Includes rules for successor employers (e.g., when a business is acquired) to count prior wages toward the cap, and extends similar changes to railroad retirement taxes.
- Additional Medicare Payroll Tax:
- Imposes a new 1.2% tax on wages exceeding $400,000 for individuals (or $500,000 for joint filers; half for married filing separately). This is on top of the existing 1.45% Medicare tax (plus a 0.9% additional tax for high earners).
- Employers withhold this only on wages over $400,000 per employee (ignoring spousal income). If not withheld, the employee pays it directly, but employers remain liable for penalties if they fail to withhold.
- Self-Employment Tax Changes:
- Mirrors payroll tax adjustments: Self-employed individuals pay Social Security taxes on net earnings up to $400,000 (beyond the current base).
- Adds the same 1.2% additional Medicare tax on self-employment income over the $400,000/$500,000 thresholds, coordinated with any wages to avoid double-taxing.
- Disallows deductions for this new Medicare tax portion when calculating self-employment income.
- Investment Income Tax Changes (Net Investment Income Tax, or NIIT):
- Expands the NIIT (currently 3.8% on investment income like interest, dividends, and capital gains for high earners) to include "specified net income," which broadens the tax base to cover more types of passive income (e.g., from trades or businesses not involving active work, and certain foreign income like subpart F income from controlled foreign corporations).
- For individuals with modified adjusted gross income (MAGI) over $400,000 ($500,000 joint), adds a 13.6% rate on the greater of net investment income or specified net income, phased in over $100,000 of excess income.
- Increases the NIIT rate for trusts and estates from 3.8% to 17.4%, applying to the greater of undistributed specified net income or investment income.
- Excludes certain items like self-employment income or foreign wages already taxed elsewhere; includes net operating losses only from non-business sources.
- Revenue Allocation:
- Directs 71.3% of the expanded NIIT revenue to the Old-Age and Survivors Insurance (OASI) Trust Fund (for retirement benefits), 10.3% to the Disability Insurance (DI) Trust Fund, and 28.7% to the Federal Hospital Insurance (HI) Trust Fund (for Medicare Part A).
- Revenue from payroll and self-employment changes goes to the existing Social Security and Medicare trust funds.
- Effective Dates:
- Payroll and self-employment changes apply to remuneration and earnings after December 31 of the year of enactment.
- NIIT expansions apply to tax years beginning after December 31, 2025.
Significant Changes to Existing Law
- Removes Social Security Wage Cap for High Earners: Currently, Social Security taxes stop at the contribution and benefit base (e.g., $168,600). This bill effectively eliminates the cap up to $400,000, taxing more income for the program (a major shift since the cap was set in 1983).
- Introduces Tiered Medicare Tax: Builds on the 2010 Affordable Care Act's 0.9% additional Medicare tax but adds another 1.2% layer at higher thresholds, increasing the top effective Medicare tax rate to 3.8% (plus employer share).
- Broadens NIIT Scope and Rates: The existing NIIT (from 2013) taxes only "net investment income" at 3.8% above $200,000/$250,000 thresholds. This expands it to "specified net income," raises rates significantly for very high earners and trusts, and adds foreign income inclusions—potentially taxing more passive wealth.
- No Deductions for New Taxes: High earners lose the ability to deduct the additional Medicare taxes, increasing their net tax burden.
- Trust Fund Transfers: Newly specifies how NIIT revenue splits across Social Security components and Medicare, which wasn't detailed before for this tax.
Potential Impacts
- On Government Agencies: The IRS will need to update withholding systems, forms, and enforcement for the new taxes, increasing administrative costs short-term but generating billions in annual revenue (estimates not in bill, but similar proposals project $200–$300 billion over 10 years). Social Security Administration and Centers for Medicare & Medicaid Services gain more stable funding, potentially delaying trust fund insolvency (projected for 2034–2035 without changes).
- On Citizens: High-income workers (top 1–5%, earning over $400,000) and investors face higher taxes, reducing take-home pay or investment returns by 1–17% on affected income. Retirees and Medicare beneficiaries (65 million Americans) benefit indirectly from preserved benefits. Low- and middle-income earners see no change.
- On International Relations: Minimal direct impact, though expanded taxation of foreign investment income (e.g., from overseas corporations) could affect U.S. multinational companies and expatriates, potentially influencing trade or tax treaty negotiations.
Main Stakeholders Affected
- High-Income Individuals and Families: Those with wages, self-employment income, or investments over $400,000/$500,000 thresholds (e.g., executives, professionals, business owners) bear the new tax burden.
- Self-Employed and Small Business Owners: Face higher self-employment taxes on earnings up to $400,000 and beyond.
- Investors and Trusts/Estates: Wealthy savers, heirs, and philanthropic trusts pay more on dividends, capital gains, and undistributed income.
- Employers: Large companies with high-paid employees must adjust payroll withholding; smaller firms may see indirect effects via successor rules.
- Social Security and Medicare Beneficiaries: Over 70 million Americans (retirees, disabled, low-income seniors) gain from enhanced program funding.
- Government Entities: U.S. Treasury (revenue collection), IRS (administration), and Social Security/Medicare trust funds (funding recipients).
Notable Legal, Constitutional, or Political Implications
- Legal/Constitutional: Relies on Congress's broad taxing power under Article I of the U.S. Constitution. Amendments to the Internal Revenue Code (IRC) are standard and likely withstand challenges, though expansions of NIIT to "specified net income" could face litigation over what counts as "investment" vs. active business income (e.g., clarifying passive activities like rental real estate). No First Amendment or due process issues apparent.
- Political: Promotes "fair share" progressivity by targeting the wealthy (introduced by Democrats), potentially reducing income inequality but sparking debates on tax hikes during economic uncertainty. Could influence midterm elections or budget negotiations; similar bills have passed committees but stalled in full Congress due to partisan divides on entitlement funding. No direct impact on states or localities, but may encourage parallel state tax policies.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Sen. Whitehouse, Sheldon [D-RI]
Cosponsors (4)
Sen. Klobuchar, Amy [D-MN], Sen. Van Hollen, Chris [D-MD], Sen. Booker, Cory A. [D-NJ], Sen. Gallego, Ruben [D-AZ]
Recent Actions
- 2025-05-08: Read twice and referred to the Committee on Finance.
- 2025-05-08: Introduced in Senate
Bill Versions
- Medicare and Social Security Fair Share Act — issued 2025-05-08 — PDF (17 pages)