The Protecting and Preserving Social Security Act requires the Bureau of Labor Statistics to publish a Consumer Price Index for Elderly Consumers (CPI‑E) and directs Social Security cost‑of‑living adjustments (COLAs) to be computed using that series. The bill also specifies that COLA-driven increases should not count as income or resources for Supplemental Security Income (SSI) or Medicaid eligibility.
On earnings above the Social Security contribution and benefit base, the bill changes both how those amounts count as wages/self‑employment income and how they feed into benefit calculations. For calendar years after 2025 it applies a phased schedule of "applicable percentages" to determine what share of surplus remuneration is treated as wages or self‑employment income for payroll tax and credit purposes, and separately creates a new “surplus AIME” (average indexed monthly earnings) that earns very modest benefit credits (3% up to a specified bend point; 0.25% above).
These mechanics change revenue and benefit incidence for high earners and introduce new administrative steps for SSA, employers, payroll processors, and tax filers.
At a Glance
What It Does
Requires BLS to publish a CPI‑E and defines the Consumer Price Index used for Social Security COLAs as that CPI‑E. Phases a set of percentages (86% in 2026 down to 0% after 2031) for how much of earnings above the contribution/benefit base count as wages or self‑employment income, and adds a parallel 'surplus' benefit component that credits a small percentage of indexed earnings above the base.
Who It Affects
Current and future OASDI beneficiaries, high‑earning employees and self‑employed taxpayers with income above the annual contribution/benefit base, employers and payroll processors, SSA administrative operations, and the BLS (data production funding).
Why It Matters
This is the first federal step to tie Social Security COLAs explicitly to an elderly‑focused CPI, which can shift benefit growth relative to the CPI‑W/CPI‑U. At the same time the bill rebalances how surplus earnings are taxed and credited—reducing the share treated as taxable/creditable while creating a small benefit recognition—introducing distributional effects and fiscal impacts that will matter for solvency and program administration.
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What This Bill Actually Does
Title I creates a new price index targeted at older consumers and makes that index the official index for computing Social Security COLAs. The bill directs the Bureau of Labor Statistics to produce a monthly Consumer Price Index for Elderly Consumers (CPI‑E) and substitutes that series for the "Consumer Price Index" language used in Social Security COLA law.
It also provides an appropriation authorization for the BLS to get the series started and includes a specific noncounting rule so that COLA‑driven increases do not count as income or resources for SSI or Medicaid eligibility determinations.
Title II rewrites how earnings above the Social Security contribution and benefit base (the payroll cap) are treated, in two parallel tracks. First, it changes the tax/credit measurement: for remuneration or self‑employment income above the yearly contribution and benefit base the statute applies an "applicable percentage" to determine the portion that counts as wages or self‑employment income for purposes of the Internal Revenue Code and Social Security Act.
The bill spells out a fixed phase‑down schedule for those applicable percentages—starting at 86% for 2026 and stepping down to 0% for calendar years after 2031—so progressively less of surplus remuneration is counted by the payroll system over the transition.Second, the bill alters benefit computation by distinguishing "basic AIME" (indexed monthly earnings up to the contribution/benefit base) from a newly defined "surplus AIME" (derived from earnings above the base). It credits surplus AIME at very low replacement rates—3% of surplus up to a bend point and 0.25% beyond that—so high earners receive a modest extra PIA component tied to surplus earnings.
The bill sets that 2026 bend point at $8,933 (for the surplus AIME calculation) and indexes it thereafter using a national average wage index rule. The new surplus rules apply only to people who initially become eligible for benefits (or die prior to eligibility) in calendar years after 2025.
Together, the two tracks reduce how much surplus income is captured by payroll measures while giving a small, separately calculated benefit credit for surplus earnings.
The Five Things You Need to Know
The bill requires the Bureau of Labor Statistics to publish a monthly Consumer Price Index for Elderly Consumers (CPI‑E) and makes that the index referenced in the Social Security COLA statute.
COLA increases computed under the CPI‑E are explicitly excluded from counting as income or resources for SSI and Medicaid eligibility determinations.
For calendar years after 2025 the statute applies an "applicable percentage" to remuneration above the contribution/benefit base: 86% (2026), 71% (2027), 57% (2028), 43% (2029), 29% (2030), 14% (2031), and 0% for years after 2031.
The self‑employment rules mirror the wage rules: taxable/self‑employment income above the base is reduced by the same phased applicable percentages, with the change effective for taxable years beginning in or after 2026.
The benefit formula adds a new surplus AIME component that credits 3% of surplus indexed monthly earnings up to a 2026 bend point of $8,933 (indexed thereafter) and 0.25% on amounts above that bend point for individuals who first become eligible after 2025.
Section-by-Section Breakdown
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BLS must publish a Consumer Price Index for Elderly Consumers (CPI‑E)
This section directs the Bureau of Labor Statistics to prepare and publish a monthly CPI‑E that measures consumption patterns for people aged 62 and older and authorizes appropriations to fund the effort. The new series becomes the legal reference for the phrase "Consumer Price Index" in subsequent COLA provisions once the effective dates run. Practically, the BLS will need to set methodology, sample frames and weights specific to an older population; the law gives no methodological detail beyond the target population and start timing.
Replace the statutory COLA index with CPI‑E and protect SSI/Medicaid status
This amendment inserts CPI‑E into the statute’s definition of the Consumer Price Index for COLA computations (including a conforming change for pre‑1979 law as applied in certain cases). It also adds a noncounting rule: any title II increase attributable to the new COLA computation does not count as income or resources for SSI or Medicaid in subsequent months, preventing automatic loss of means‑tested benefits. The section includes a specific phased effective date keyed to cost‑of‑living computation quarters (COL quarters) ending on or after September 30 of the second calendar year following enactment, which delays the first COLA under CPI‑E.
Phase down the share of surplus remuneration treated as wages or self‑employment income
This part amends IRC §3121 (wages) and §1402 (self‑employment) and the corresponding Social Security Act provisions to apply an "applicable percentage" to amounts above the contribution/benefit base. The bill lists the exact percentages for calendar years 2026–2031 (86%, 71%, 57%, 43%, 29%, 14%) and sets the percentage at 0% for years after 2031. The wage amendments apply to remuneration paid after 2025; the self‑employment changes apply to taxable years beginning during or after 2026. For payroll and employment tax compliance this introduces a year‑by‑year calculation based on the calendar year of payment or the taxable year for self‑employed filers.
Create surplus AIME and add small benefit credits for earnings above the cap
This section separates basic AIME (indexed earnings up to the contribution/benefit base) from surplus AIME (indexed earnings above the base). It defines surplus AIME as adjusted surplus earnings divided by months, and adds two new PIA components: 3% of surplus AIME up to a bend point and 0.25% of surplus AIME above that bend point. The bill sets the initial bend point at $8,933 for individuals first eligible in 2026 and then indexes the bend point using a national average wage index formula with a floor tied to the highest prior index when appropriate. The surplus AIME provisions apply only to individuals who initially become eligible for benefits (or die before eligibility) in calendar years after 2025.
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Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Many Social Security beneficiaries if CPI‑E rises faster than CPI‑W/CPI‑U: beneficiaries (particularly older retirees with spending patterns weighted toward healthcare and housing) could see larger COLAs over time because the CPI‑E reflects older consumers’ expenses more directly.
- People with earnings above the payroll cap who eventually qualify for benefits after 2025: the surplus AIME establishes a modest additional PIA credit for surplus earnings, so high earners who become newly eligible after 2025 gain a small benefit increment tied to earnings above the cap.
- BLS and statistical users: the CPI‑E creates a new official series that researchers, agencies, and private actors can use to analyze elderly inflation and design policy targeted to older households.
- SSI and Medicaid recipients who gain COLAs: the noncounting rule preserves eligibility for means‑tested benefits even when CPI‑E COLAs raise OASDI checks, reducing the risk of benefit cliffs caused by higher nominal Social Security payments.
Who Bears the Cost
- The Social Security trust funds and federal budget: replacing existing measurement and changing the payroll‑tax base/credit rules will alter revenue and outlay trajectories; smaller taxation of surplus earnings (phase‑down to 0%) reduces payroll revenue while surplus credits increase benefits for a subset—creating actuarial impacts.
- Employers, payroll providers and tax software vendors: they must implement year‑by‑year applicable percentage calculations for wages paid after 2025 and adapt payroll systems to a moving, phased schedule and to new reporting inputs.
- Self‑employed taxpayers and tax preparers: the self‑employment provisions change how net earnings above the base are computed for Social Security; filers will face new calculation rules beginning with taxable years starting in 2026.
- SSA administrative operations: computing basic vs. surplus AIME, applying the new indexing rule for the surplus bend point, and rolling out the COLA change will require system updates, training, and guidance—without an explicit SSA implementation appropriation in the bill.
- Federal statistical budgets: BLS must fund development of the CPI‑E; while the bill authorizes appropriations, the scale and timing of that funding will determine how quickly a robust CPI‑E series is operational.
Key Issues
The Core Tension
The central dilemma is between targeting benefit growth to older consumers and maintaining a fiscally coherent payroll‑tax base: the bill increases the COLA benchmark toward the price experience of the elderly while simultaneously shrinking and reassigning how surplus earnings are counted and credited—improving benefit indexing for retirees on one axis but reducing payroll revenue and complicating administrability on the other, with no actuarial reconciliation in the text.
The bill stitches together three moving parts—an elderly‑focused price index for COLAs, a phased reduction in the share of surplus earnings treated as wages/self‑employment income, and a low‑rate benefit credit for surplus earnings. Those components pull in different directions: an elderly CPI may raise benefit growth, while the phase‑down of applicable percentages reduces payroll base coverage and therefore revenue.
The net fiscal and distributional outcome depends on elasticities, index behavior, and demographic trends—none of which the bill quantifies or mandates an actuarial review to resolve before implementation.
Implementation complexity is nontrivial. Payroll systems and tax forms will need new fields and logic to apply the applicable percentage schedule on a calendar‑by‑calendar basis and to separate basic from surplus earnings when preparing wage reports and SSA earnings records.
SSA must also incorporate surplus AIME into its PIA computation and maintain an indexed bend point with a novel indexing rule tied to the national average wage index and a prior‑year floor. The bill authorizes BLS production of CPI‑E but leaves methodological choices and sample design to the agency; different reasonable choices about weight structure, housing treatment, and healthcare pricing will materially affect future COLAs.
Finally, the bill raises distributional and solvency questions. It reduces payroll coverage of surplus earnings over a transition period while providing only modest benefit credits for those earnings—a structure that looks like a partial tax cut for high earners combined with small benefit recognition.
Whether that trade—less revenue now for a small future benefit increase for a subset of beneficiaries—aligns with long‑term program finance objectives is an open question. The interaction with other payroll taxes (Medicare), state reporting requirements, and coordination for people with multiple employers or mixed wage/self‑employment income also requires rulemaking that the text does not flesh out.
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