S. 770 — Social Security Expansion Act

This section establishes the short title of the Act as the “Social Security Expansion Act” and includes the table of contents.

This section revises the formula for calculating the primary insurance amount (PIA)—which determines monthly old-age and disability insurance benefits based on an individual's average indexed monthly earnings (AIME)—by (1) increasing the percentage applied to AIME up to the first bend point to 95% (from 90%), and (2) increasing the first bend point dollar amount by 18% for individuals who initially become eligible for benefits (or die before eligibility) after 2025. (As background, the first bend point is currently indexed annually from a 1979 base of $180—e.g., $1,174 for 2024 eligibility—and delineates the lowest AIME tier in the progressive PIA formula.) The changes apply to benefits payable for months in calendar years beginning on or after January 1, 2026, with the Social Security Commissioner required to recompute all prior PIAs (including for pre-2026 eligibles) by applying the 18% increase to the first bend point for the individual's original eligibility year. (Thus, the revisions increase replacement rates and benefit levels, particularly for low earners whose AIME falls mostly within the first bend point.)

This section revises the cost-of-living adjustment (COLA) provision of the Social Security Act (SSA §215(i)) to define the Consumer Price Index as the Consumer Price Index for Elderly Consumers (CPI-E, i.e., measuring inflation for households headed by individuals age 62 or older, as published by the Bureau of Labor Statistics (BLS)) rather than the CPI for Urban Wage Earners and Clerical Workers; applies this change to pre-1979 SSA law; and specifies that adjustments under other laws tied to SSA COLA determinations continue using the prior CPI. (As background, SSA COLAs apply to Old-Age, Survivors, and Disability Insurance benefits under title II, federal payments under title VIII, and Supplemental Security Income benefits under title XVI.) This section further directs BLS to publish CPI-E monthly beginning July of the calendar year following enactment and makes the SSA amendments applicable to COLA computation quarters (i.e., third calendar quarters used to determine next year's COLA) ending on or after September 30 of the second calendar year following enactment.

This section establishes an alternative minimum primary insurance amount (PIA) for Social Security old-age insurance benefits and disability insurance benefits (or for decedents before eligibility), effective for individuals who become eligible after 2025, set at the greater of the existing special minimum PIA or—for those with more than 10 years of work (i.e., years with 4 quarters of coverage)—an applicable percentage (6.25% for 11 years to 125% for 30 or more years) of 1/12th of the annual dollar amount. (As background, the PIA determines the basic monthly benefit payable; the existing special minimum PIA provides a benefit floor for individuals with low lifetime earnings but substantial years of coverage.) The annual dollar amount equals the 2025 federal poverty guideline for a single individual in 2026, indexed annually thereafter by the national average wage index (from a 2024 base). This section further directs the Commissioner of Social Security to recompute all prior PIAs computed for months before November 2025 as necessary to apply these changes (notwithstanding limits on recomputations) and makes a conforming amendment to the national average wage index definition to reference the redesignated provision.

This section revises eligibility and termination rules for child's insurance benefits under the Social Security Act to extend such benefits to full-time students under age 22 (from age 19 for elementary or secondary students) who are children of individuals entitled to disability insurance benefits or deceased fully or currently insured individuals. (As background, child's insurance benefits provide monthly payments to qualified children, including students, of workers entitled to old-age, disability, or survivor benefits under SSA Title II.) It distinguishes eligibility and termination as follows: (1) for children of old-age benefit recipients, benefits end at age 19 or upon ceasing to be a full-time elementary or secondary school student; and (2) for children of disability benefit recipients or deceased insured individuals, benefits end at age 22 or upon ceasing full-time student status (absent disability). The section defines "full-time student at an educational institution" as full-time attendance at an elementary school (if under age 19), secondary school, or institution of higher education as defined in the Higher Education Act (20 U.S.C. 1002), as determined by the Commissioner of Social Security; excludes individuals paid by an employer to attend at the employer's request or requirement or incarcerated pursuant to a felony conviction; deems such status throughout the month of determination; and, subject to regulations, deems status during limited periods of nonattendance at the institution.

This section revises the definition of wages for Social Security payroll taxes under IRC §§3101(a) and 3111(a) to exclude, in calendar years when the contribution and benefit base is less than $250,000, only remuneration exceeding the base but not exceeding $250,000 (previously, all remuneration exceeding the base). (Thus, Social Security taxes—12.4% total (6.2% each on employees and employers)—apply to remuneration up to the base (e.g., $168,600 in 2024) and exceeding $250,000 paid to an individual by an employer during the year.) (1) It adds successor employer rules under new IRC §3121(aa), under which a successor acquiring substantially all of a predecessor's business must aggregate prior-year remuneration paid by the predecessor to the same individual when applying this exclusion; and (2) it makes a conforming revision to railroad retirement taxes under IRC §3231(e)(2)(A)(i). The changes apply to remuneration paid on or after January 1 of the first calendar year beginning after enactment.

This section revises the formula under IRC §1402(b)(1) for the portion of net earnings from self-employment excluded from the Social Security (OASDI) self-employment tax base (IRC §1401(a), imposed at 12.4%) for taxable years beginning in calendar years when the contribution and benefit base (e.g., $168,600 in 2024) is less than $250,000. (As background, that tax currently applies to net earnings up to the base, reduced by wages subject to FICA up to the base, after which only the Medicare portion applies.) The revision sets the excluded amount to the excess (if any) of (A) net earnings exceeding (base minus wages) over (B) the sum of (i) net earnings (reduced by the excess of base over wages) exceeding ($250,000 minus base) and (ii) wages exceeding the base but not exceeding $250,000. (Thus, this effectively imposes the OASDI self-employment tax on net earnings exceeding $250,000—adjusted for wages between the base and $250,000—in addition to net earnings up to the base.) The amendments apply to net earnings from self-employment derived, and remuneration paid, on or after January 1 of the first calendar year beginning after enactment.

This section increases the net investment income tax rate to 16.2% (from 3.8%) on certain unearned and now active trade or business income of high-income taxpayers and revises the tax's chapter heading to reflect that it applies in lieu of Social Security and Medicare taxes. Specifically, it expands the definition of net investment income by (1) eliminating prior exclusions for income derived in the ordinary course of a trade or business (other than trading financial instruments or commodities), property held in such a trade or business, and specified service trades or businesses; (2) applying passive activity loss rules (under IRC §469(c)(5) and (6)) to certain business interests; (3) denying the net operating loss deduction in computing net investment income; and (4) excluding only items subject to self-employment tax (IRC §1401) or employee FICA tax (IRC §3101). The changes apply to taxable years beginning after enactment.

This section establishes a single Social Security Trust Fund (SSTF) by amending Section 201(a) of the Social Security Act to consolidate the Federal Old-Age and Survivors Insurance Trust Fund (OASI, which finances retirement and survivors benefits) and Federal Disability Insurance Trust Fund (DI, which finances disability benefits), transferring their securities and balances as of January 1 of the first calendar year after enactment. (1) The SSTF receives all prior assets, gifts, bequests, and annual appropriations equal to 100% of Social Security payroll taxes under IRC chapters 21 (excluding Medicare portions under sections 3101(b) and 3111(b)) and 2 (excluding Medicare under section 1401(b)), plus 62% of the net investment income tax under IRC section 1411 (previously allocated to the Medicare Hospital Insurance Trust Fund); (2) requires annual actuarial reports under Section 201(c) to analyze costs for disabled, retired, and survivor beneficiaries and their auxiliaries; and (3) reconstitutes the Board of Trustees for the single SSTF with continuity from the prior OASI and DI boards. (Thus, the SSTF receives the full Social Security payroll tax revenue previously split between OASI and DI.)