HB7361 adds a targeted exclusion to the Internal Revenue Code: any portion of a monthly insurance benefit under title II of the Social Security Act that is attributable to the amendments made by the Social Security Fairness Act of 2023 and that relates to benefits paid for months beginning after December 31, 2024 and ending before January 1, 2026 will not count as a “social security benefit” for federal income tax purposes. The change is implemented by inserting a new paragraph into IRC section 86(d).
The provision narrows taxable Social Security income for affected beneficiaries only for the 2025 benefit months. That creates an immediate federal revenue impact for that tax year and raises practical questions about how the Social Security Administration (SSA) and the IRS will identify, calculate, and report the excluded amounts on beneficiaries’ tax statements.
At a Glance
What It Does
The bill amends section 86(d) of the Internal Revenue Code to exclude from the statutory definition of 'social security benefit' the portion of title II monthly insurance payments that is attributable to amendments enacted by the Social Security Fairness Act of 2023, but only for payments covering months in calendar year 2025.
Who It Affects
Directly affects Social Security title II beneficiaries whose monthly payments in 2025 contain amounts attributable to the 2023 legislation. It also affects the SSA and IRS for calculation and reporting, and state tax systems that conform to federal taxable income.
Why It Matters
This is a narrowly targeted, single-year tax exclusion that reduces federal taxable income for a defined set of beneficiaries and creates administrative tasks for federal agencies and tax filers. Compliance officers, tax planners, and state revenue officials will need to account for a new, year-specific exclusion when preparing returns and budgets.
More articles like this one.
A weekly email with all the latest developments on this topic.
What This Bill Actually Does
The bill is short and surgically focused: it inserts a special rule into the Internal Revenue Code that removes from the definition of ‘social security benefit’ any portion of a title II monthly insurance payment that can be traced to amendments made by the Social Security Fairness Act of 2023, but only if those payments cover months in 2025. In practice that means recipients who receive an increase (or other change) in their title II payments due to the 2023 amendments will not have that increment counted as taxable Social Security income for the 2025 benefit months.
Mechanically, the change operates by adding paragraph (6) to section 86(d), which is the subsection of the tax code used to determine how much of Social Security benefits are taxable. The bill limits the exclusion both by source (amounts attributable to the 2023 amendments) and by time (months after 12/31/2024 and before 1/1/2026).
It does not otherwise amend rules that determine whether benefits are taxed in other years, nor does it alter title II benefit law itself.Because Social Security benefits are typically reported to taxpayers on SSA-issued statements (for example, SSA-1099 forms) and then claimed on federal returns, implementing the exclusion will require SSA and IRS coordination. Agencies will need to establish a method to identify and quantify the portion of each beneficiary’s 2025 payments that is “attributable to” the 2023 amendments and reflect that on tax reporting.
The bill does not prescribe a calculation method or require SSA to issue corrected information statements; those operational decisions would fall to agencies and implementing guidance.Practically, taxpayers and preparers should expect a discrete change on 2025 returns for affected beneficiaries: reduced reported Social Security benefits and lower taxable income for some filers. States that compute income tax starting from federal adjusted gross income or federal taxable income will see parallel effects unless they decouple from federal treatment.
The bill’s singular, year-limited scope makes it easier to confine its revenue and administrative effects to a single tax year, but it also concentrates complexity into a short implementation window.
The Five Things You Need to Know
The bill adds a new paragraph (6) to IRC section 86(d) that redefines ‘social security benefit’ to exclude certain amounts.
The exclusion applies only to portions of monthly title II insurance benefits that are attributable to amendments made by the Social Security Fairness Act of 2023.
Temporal scope is narrow: only benefits for months beginning after December 31, 2024 and ending before January 1, 2026 (i.e.
calendar year 2025) qualify for the exclusion.
The bill affects how beneficiaries’ Social Security payments are counted for federal income tax but does not change entitlement, benefit calculation under title II, or treatment for months outside 2025.
The text does not specify a calculation method or reporting procedure, leaving SSA and IRS to determine how to identify, quantify, and report excluded amounts on beneficiaries’ tax documentation.
Section-by-Section Breakdown
Every bill we cover gets an analysis of its key sections.
Short title
Provides the Act’s name, the 'No Tax on Restored Benefits Act.' This is formal and has no substantive legal effect beyond naming the statute for citation.
Amendment to Internal Revenue Code §86(d)
Inserts a new paragraph (6) into IRC section 86(d). Section 86 governs how Social Security benefits are treated in computing gross income; subsection (d) supplies definitions. By adding paragraph (6), the bill narrows that statutory definition for a defined subset of title II payments, thereby changing which amounts get included on taxpayers’ returns.
Source and temporal limits on the exclusion
Paragraph (6) conditions the exclusion on two specific features: first, the excluded amount must be 'attributable to the amendments made' by the Social Security Fairness Act of 2023; second, it must 'relate to' benefits paid for months that begin after December 31, 2024 and before January 1, 2026. Those two limiting clauses keep the change narrowly targeted to increases (or other adjustments) that stem from the 2023 act and confine the tax effect to benefits covering calendar year 2025.
This bill is one of many.
Codify tracks hundreds of bills on Finance across all five countries.
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
- Title II beneficiaries whose 2025 monthly payments contain amounts attributable to the Social Security Fairness Act of 2023 — they will have less Social Security income counted as taxable on their 2025 federal returns.
- Low- and middle-income households that rely on title II benefits and would otherwise have seen a small increase in taxable income — they may avoid higher marginal tax liability or preserve tax credits phased out by higher AGI.
- Taxpayers in states that conform to federal taxable income for 2025 — those filers may also see their state taxable income reduced unless the state law decouples.
Who Bears the Cost
- U.S. Treasury — the exclusion reduces federal income tax receipts for the 2025 tax year for affected beneficiaries without providing offsets in the bill text.
- Social Security Administration and IRS — agencies must identify, calculate, and reflect excluded amounts on information returns (SSA-1099 and taxpayer forms), requiring systems, guidance, and potentially corrected statements.
- Tax preparers and compliance officers — they face new reporting and documentation requirements for 2025 returns and must advise clients on how the exclusion interacts with withholding, estimated tax payments, and eligibility for credits tied to AGI.
Key Issues
The Core Tension
The central dilemma is between targeted, retrospective tax relief for beneficiaries (addressing perceived fairness of benefits restored by prior Social Security legislation) and the practical burdens that an administratively vague, single‑year exclusion imposes on federal agencies, taxpayers, and state revenue systems; solving one problem (taxing only the intended portion of benefits) creates complexity that may outweigh the intended simplicity of a narrow exclusion.
The bill delivers narrow tax relief but leaves key implementation details unspecified. It requires SSA and IRS to determine which portion of a beneficiary’s monthly payment is 'attributable to' the 2023 amendments, yet it gives no statutory methodology, safe harbor, or documentation standard.
That omission risks inconsistent calculations across beneficiaries or the need for agency rulemaking and programming changes to SSA/IRS systems during a single calendar year window.
The time-limited nature reduces the policy footprint but increases administrative pressure: agencies must execute calculation and reporting changes for benefits covering only 2025, then revert for subsequent years. That creates a one-year spike in workload and a potential need for corrected information returns if agencies later change their approach.
States that automatically follow federal taxable income may see unanticipated revenue effects unless they adopt specific conforming or decoupling legislation.
Finally, the bill is silent on audit, penalty, and documentation expectations for taxpayers who rely on the exclusion. Without clear reporting rules, taxpayers and preparers will face uncertainty about substantiation if the IRS challenges the excluded amounts, increasing compliance risk for a benefit that applies to a single tax year.
Try it yourself.
Ask a question in plain English, or pick a topic below. Results in seconds.