To repeal the provisions in the Internal Revenue Code of 1986 relating to the inclusion of Social Security and certain railroad retirement benefits in gross income to the extent such provisions do not apply to nonresident aliens.

Summary: Repeals, except with respect to nonresident aliens, Internal Revenue Code provisions that include social security and tier I railroad retirement benefits in the gross (taxable) income of certain taxpayers.

SECTION 1. REPEAL OF PROVISION WHICH INCLUDES ONE-HALF OF SOCIAL 
              SECURITY AND RAILROAD RETIREMENT BENEFITS IN GROSS 
              INCOME.

    (a) Repeal of Provision Including Benefits in Gross Income.--
Section 86 of the Internal Revenue Code of 1986 (relating to inclusion 
of social security and tier 1 railroad retirement benefits in gross 
income) is hereby repealed.
    (b) Repeal of Return Requirement.--Section 6050F of such Code 
(relating to returns relating to Social Security benefits) is hereby 
repealed.
    (c) Technical and Conforming Amendments.--
            (1) Paragraph (3) of section 72(r) of such Code is amended 
        to read as follows:
            ``(3) Tier 1 railroad retirement benefit.--For purposes of 
        paragraph (1), the term `tier 1 railroad retirement benefit' 
        means a monthly benefit under section 3(a), 3(f)(3), 4(a), or 
        4(f) of the Railroad Retirement Act of 1974.''
            (2) Paragraph (1) of section 6050G(a) of such Code is 
        amended by striking out ``86(d)(4)'' and inserting in lieu 
        thereof ``72(r)(3)''.
            (3) The table of sections for part II of subchapter B of 
        chapter 1 of such Code is amended by striking out the item 
        relating to section 86.
            (4) The table of sections for subpart B of part III of 
        subchapter A of chapter 61 of such Code is amended by striking 
        out the item relating to section 6050F.
    (d) Effective Date.--The amendments made by this section shall 
apply to benefits received after December 31, 1989, in taxable years 
beginning after such date.

SEC. 2. TAXATION OF ONE-HALF OF SOCIAL SECURITY BENEFITS PAID TO 
              NONRESIDENT ALIENS CONTINUED.

    (a) In General.--Section 871 of the Internal Revenue Code of 1986 
(relating to tax on nonresident alien individuals) is amended by 
redesignating subsection (j) as subsection (k) and by inserting after 
subsection (i) the following new subsection:
    ``(j) Social Security Benefit Defined.--
            ``(1) In general.--For purposes of this section, the term 
        `social security benefit' means any amount received by the 
        taxpayer by reason of entitlement to--
                    ``(A) a monthly benefit under title II of the 
                Social Security Act, or
                    ``(B) a tier 1 railroad retirement benefit.
        For purposes of the preceding sentence, the amount received by 
        any taxpayer shall be determined as if the Social Security Act 
        did not contain section 203(i) thereof.
            ``(2) Adjustment for repayments during year.--For purposes 
        of this section, the amount of Social Security benefits 
        received during any taxable year shall be reduced by any 
        repayment made by the taxpayer during the taxable year of a 
        Social Security benefit previously received by the taxpayer 
        (whether or not such benefit was received during the taxable 
        year).
            ``(3) Workmen's compensation benefits substituted for 
        social security benefits.--For purposes of this section, if, by 
        reason of section 224 of the Social Security Act (or by reason 
        of section 3(a)(1) of the Railroad Retirement Act of 1974), any 
        Social Security benefit is reduced by reason of the receipt of 
        a benefit under a workman's compensation act, the term `Social 
        Security benefit' includes that portion of such benefit 
        received under the workman's compensation act which equals such 
        reduction.
            ``(4) Tier 1 railroad retirement benefit.--For purposes of 
        paragraph (1), the term `tier 1 railroad retirement benefit' 
        has the meaning given to such term by section 72(r)(3).''
    (b) Technical and Conforming Amendments.--
            (1) Paragraph (8) of section 861(a) of such Code is amended 
        by striking out ``86(d)'' and inserting in lieu thereof 
        ``871(j)''.
            (2) Paragraph (3) of subsection (a) of such section 871 is 
        amended to read as follows:
            ``(3) Taxation of social security benefits.--For purposes 
        of this section and section 1441, one-half of any Social 
        Security benefit shall be included in gross income 
        (notwithstanding section 207 of the Social Security Act).''
            (3) Paragraph (6) of section 6103(h) of such Code is 
        amended by striking out ``86(d)'' and inserting in lieu thereof 
        ``871(j)''.
            (4) Subsection (e) of section 121 of the Social Security 
        Amendments of 1983 is amended--
                    (A) in paragraph (1) by striking out ``sections 86 
                and'' and inserting in lieu thereof ``section'', and
                    (B) in paragraph (3)(B) by striking out 
                ``86(d)(1)'' and inserting in lieu thereof 
                ``871(j)(1)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to benefits received during the first taxable year after 
enactment of this Act.