Social Security Overhaul: Bigger Benefits, New Taxes Coming

The Social Security Expansion Act is a big deal – it's promising larger Social Security checks, but it's also shaking up how the system's funded. Here’s the rundown of what’s changing and how it might affect you.

Bigger Checks, Different Math

Starting January 1, 2026, everyone on Social Security gets a raise. The formula used to calculate benefits is getting tweaked, boosting the initial benefit amount. Specifically, the first "bend point" percentage goes up from 90% to 95% (SEC. 2). Plus, there's an 18% bump in the bend point amount for anyone who becomes eligible for old-age or disability benefits after 2025. Even if you're already getting benefits, the Social Security Administration will recalculate your payments to reflect this increase.

They’re also changing how they calculate cost-of-living adjustments (COLAs). Instead of the standard Consumer Price Index, they’ll use the Consumer Price Index for Elderly Consumers (CPI-E) (SEC. 3). This index is supposed to better reflect the spending habits of older folks, potentially leading to bigger annual increases in your benefits. The Bureau of Labor Statistics will start publishing this monthly, starting in July of the year after the bill is enacted.

Minimum Benefit Boost

If you've worked lower-paying jobs your whole life, this bill could mean a significant bump in your minimum Social Security benefit. Starting in 2026, there's a new "alternative minimum amount" based on your years of work (SEC. 4). It's tied to the poverty guideline for 2025 and will be adjusted annually based on wage index changes. Basically, the longer you've worked, even at lower wages, the higher your minimum benefit will be. A "year of work" is defined as a year in which an individual has earned 4 quarters of coverage based on their wages and self-employment income.

Example: Imagine a retail worker who's consistently worked for 30 years but always earned close to minimum wage. This change could mean a noticeable bump in their retirement income, providing a more secure financial future.

Students Stay Covered Longer

Got kids in college? If they're relying on Social Security benefits, this is good news. The bill extends benefits to full-time students up to age 22 (SEC. 5). Previously, benefits typically ended at 18 or 19. This applies to kids of people receiving disability or retirement benefits, and to children of deceased workers. There are rules, of course – they have to be actually full-time students, and there are specific definitions for what that means. If a child turns 22 while in school, they will continue to receive benefits until the end of the quarter or semester they are enrolled in at that time.

Paying for It: New Taxes

Here's where things get interesting – and potentially controversial. To fund these bigger benefits, the bill introduces some new taxes:

• Payroll Tax Changes: If you make over the Social Security contribution and benefit base (that's $168,600 in 2024), and also more than $250,000, you'll pay more in payroll taxes (SEC. 6). Specifically, remuneration exceeding the contribution and benefit base, but not exceeding $250,000, will be subject to payroll tax. This closes a loophole where some high earners avoided paying Social Security taxes on a portion of their income.
• Self-Employment Tax: Similar changes apply to self-employment taxes (SEC. 7). If you're self-employed and earning over those same thresholds, you'll see an increase in your tax bill.
• Investment Tax Hike: This is a big one. The tax on net investment gains is going up – way up. Instead of the current 3.8%, it jumps to 16.2% (SEC. 8). This includes income from active trades or businesses and removes the ability to deduct net operating losses. This will significantly impact investors and business owners.

One Big Trust Fund

Finally, the bill consolidates the existing Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund into one new "Social Security Trust Fund" (SEC. 9). All the new taxes mentioned above will flow into this fund, and all benefits will be paid out of it. The Board of Trustees will oversee it, and they're required to do regular actuarial analyses to make sure the fund stays healthy.

The Bottom Line

The Social Security Expansion Act is a mixed bag. It offers increased financial security for many, especially lower-income workers and students. However, it comes with a hefty price tag, particularly for higher earners and investors. Whether the increased benefits outweigh the new taxes is a question that will likely be debated for a long time – but for now, these are the concrete changes on the table.