The Assuring Medicare’s Promise Act of 2025 strengthens the Medicare Hospital Insurance Trust Fund by expanding the net investment income tax and directing its revenue toward long-term program solvency.
Lloyd Doggett
Representative
TX-37
The Assuring Medicare’s Promise Act of 2025 aims to strengthen the Medicare Hospital Insurance Trust Fund by redirecting revenue from the net investment income tax directly to the program. Additionally, the bill expands the scope of this tax for high-income earners by including certain trade or business income and foreign earnings in the tax base. These measures are designed to improve the long-term financial stability of Medicare starting in 2026.
Medicare Trust Fund Gets a Boost as 3.8% Investment Tax Expands for High Earners Starting 2026
The 'Assuring Medicare’s Promise Act of 2025' is a strategic move to shore up Medicare Part A, the part of the program that covers hospital stays. Right now, the 3.8% Net Investment Income Tax (NIIT) goes into the general treasury, but this bill changes the plumbing of the federal budget. Starting in 2026, Section 2 requires every dollar collected from this tax to be deposited directly into the Hospital Insurance Trust Fund. By rerouting this existing revenue stream, the bill aims to extend the life of Medicare without cutting benefits for the millions of seniors who rely on it for emergency care and surgeries.
Closing the 'Active' Loophole
The most significant shift in this bill is how it defines taxable income for people making over certain thresholds—$400,000 for individuals and $500,000 for joint filers (Section 3). Currently, if you are a high-earner who actively manages a business (like a partner in a law firm or a consultant with an S-corp), that 'active' business income is often exempt from the 3.8% NIIT. Under this bill, that exemption disappears for the portion of income above the threshold. For example, a successful tech consultant making $600,000 a year who previously only paid the tax on their stock dividends would now see that 3.8% rate applied to their business profits as well. It’s a move designed to treat business profits more like the wages of a W-2 employee, who already pays into Medicare through payroll taxes.
New Rules for Trusts and Global Gains
The bill doesn't stop at individual income; it also tightens the screws on trusts and international earnings. Section 3 modifies the tax base for estates and trusts, ensuring they pay the 3.8% on the greater of their investment income or their 'specified net income.' Additionally, for the first time, certain types of foreign income—like earnings from controlled foreign corporations (GILTI)—will be pulled into the net investment income bucket. This means a high-net-worth individual with offshore investments will no longer be able to keep those gains shielded from the Medicare tax. It’s a clear attempt to modernize the tax code to catch up with how the wealthiest Americans actually move and grow their money.
The Complexity Cost
While the goal is to save Medicare, the rollout will likely keep CPAs busy for years. The bill introduces a 'phase-in' mechanism for the tax increase, where the extra hit is capped based on how far you are over the income threshold. This creates a 'cliff' effect that requires precise math to avoid overpayment. For a small business owner who is just crossing that $400,000 mark, the bookkeeping becomes significantly more complex. They’ll have to navigate new IRS regulations (required by Section 3) that coordinate how foreign distributions and previously taxed income are handled. While the average worker won't see a change in their paycheck, those at the top of the income scale will face a more sophisticated—and expensive—tax filing season starting in 2026.