DESCRIPTION OF THE SOCIAL SECURITY BENEFITS

TAX RELIEF ACT OF 2000

(H.R. 4865)

Scheduled for Markup

by the

HOUSE COMMITTEE ON WAYS AND MEANS

on July 19, 2000

Prepared by the Staff

of the

JOINT COMMITTEE ON TAXATION

July 17, 2000

JCX-73-00
(i)

CONTENTS

Page

I. INTRODUCTION ................................................ 1

II. DESCRIPTION OF THE SOCIAL SECURITY BENEFITS TAX

RELIEF ACT OF 2000 ............................................ 2
1

 This document may be cited as follows: Joint Committee on Taxation, Description of

the “Social Security Benefits Tax Relief Act of 2000" (H.R. 4865) (JCX-73-00) July 17, 2000.

-1-

I. INTRODUCTION

The House Committee on Ways and Means has scheduled a markup of H.R. 4865, the

“Social Security Benefits Tax Relief Act of 2000" (H.R. 4865), on July 19, 2000.

This document,1

 prepared by the staff of the Joint Committee on Taxation, provides a

description of the provisions contained in H.R. 4865.
2

 Similar rules apply to the taxation of railroad retirement tier 1 benefits.

3

 The threshold amount is zero in the case of a taxpayer who is married at the end of the

year, who files a separate return, and who does not live apart from his or her spouse for the entire

taxable year.

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II. THE SOCIAL SECURITY BENEFITS TAX

RELIEF ACT OF 2000

(H.R. 4865)

Present Law

In general

Under present law, the amount of Social Security benefits that is taxable depends on the

taxpayer’s income.2 Social Security benefits are not taxable in the case of a married taxpayer

filing a joint return with income less than or equal to $32,000 ($25,000 in the case of a single

taxpayer). Up to 50 percent of Social Security benefits are taxable in the case of a married

taxpayer filing a joint return with income over $32,000 but not more than $44,000 (over $25,000

but not more than $34,000 for single taxpayers). Up to 85 percent of Social Security benefits are

taxable in the case of a married taxpayer filing a joint return with income over $44,000 (over

$34,000 in the case of a single taxpayer).3

 The 85-percent level (or second-tier) tax was added by

the Revenue Reconciliation Act of 1993 (the “1993 Act”), effective for taxable years beginning

after December 31, 1993.

If a taxpayer’s income exceeds the lower threshold but does not exceed the second-tier

threshold, then the amount of taxable Social Security benefits is the lesser of (1) 50 percent of the

taxpayer’s Social Security benefits, or (2) 50 percent of the excess of the taxpayer’s income over

the lower threshold.

If a taxpayer’s income exceeds the second-tier threshold, then the amount of taxable

Social Security benefits is the lesser of: (1) 85 percent of the taxpayer’s Social Security benefits

or (2) the sum of: (a) 85 percent of the excess of the taxpayer's income over the second-tier

threshold, plus (b) the smaller of (i) the amount of benefits that would have been included if the

50-percent inclusion rule were applied, or (ii) one-half of the difference between the taxpayer's

second-tier threshold and lower threshold.

In determining whether a taxpayer’s income exceeds the threshold amounts described

above, income includes adjusted gross income (“AGI”), plus one-half of Social Security benefits,

plus the following nontaxable items: (1) tax-exempt interest; (2) interest on education savings

bonds; (3) employer-provided adoption assistance; (4) deductible student loan interest; (5)

foreign earned income; and (6) income earned in Puerto Rico, Guam, American Samoa, or the

Northern Mariana Islands.
4

 The provisions of the bill would also apply to the taxation of railroad retirement tier 1

benefits.

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Special rules apply to a nonresident who is not a U.S. citizen. For purposes of taxing the

income of nonresident individuals who are not U.S. citizens, the income thresholds for including

Social Security benefits do not apply. Instead, 85 percent of benefits are included in gross

income and subject to the withholding tax. Prior to 1995, 50 percent of Social Security benefits

were subject to the withholding tax.

Trust funds

Revenues from the income taxation of Social Security benefits attributable to the 1993

Act increase are credited quarterly to the Medicare Hospital Insurance (“HI”) Trust Fund. The

remainder of the proceeds from the income taxation of Social Security benefits are credited

quarterly to the Old-Age and Survivors Insurance Trust Fund or the Disability Insurance Trust

Fund, as appropriate.

Description of Proposal

Reduction of tax

The bill would repeal the second-tier, 85-percent level tax on Social Security benefits.4

Thus, such benefits would be taxed under the law in effect prior to the 1993 Act. The bill would

also reduce to 50 percent the amount of Social Security benefits included in the gross income and

the amount subject to the withholding tax of a nonresident individual who is not a U.S. citizen.

Trust funds

An amount equal to the revenues from the income taxation of Social Security benefits

which would have been credited to the HI Trust Fund under the 1993 Act (but would not be

credited under the repeal contained in this bill) would be transferred to the HI Trust Fund from

the general fund in the Treasury at such times and in such manner as to replicate the prior-law

transfers.

Effective Date

The provisions would be effective for taxable years beginning after December 31, 2000.