The "You Earned It, You Keep It Act" proposes to eliminate the federal income taxation of Social Security benefits for all recipients, effective for taxable years beginning after its enactment. This significant change aims to provide financial relief to Social Security beneficiaries. To safeguard the financial health of the Social Security Trust Funds, the bill mandates appropriations from the Treasury to fully offset any revenue loss resulting from this repeal, ensuring the funds are held harmless.

A core component of the bill involves substantial modifications to the Social Security payroll tax structure for high earners, applicable to calendar years after 2025. It repeals the existing cap on wages subject to Social Security taxes. Instead, Social Security taxes will apply to wages up to the current contribution and benefit base, and then again to remuneration exceeding $250,000, effectively creating a "donut hole" for income between these two thresholds. Similar adjustments are also made for self-employment income and Railroad Retirement taxes to ensure consistent application.

To prevent avoidance of the new tax on high earnings, the bill introduces a new tax on employees who receive wages from multiple employers that, in aggregate, exceed $250,000. This ensures that the Social Security tax is collected on all earnings above this threshold, even if no single employer pays that amount. Additionally, the bill modifies the calculation of the National Average Wage Index for years after 2025, increasing it by specific percentages over time, which is expected to lead to a higher contribution and benefit base.

The legislation also amends the Social Security benefit formula to incorporate earnings above $250,000 into the calculation of Primary Insurance Amounts (PIA). Specifically, 2 percent of an individual's "excess average indexed monthly earnings"—defined as earnings above the higher of $250,000 or the contribution and benefit base for years after 2025—will be added to their benefit. Finally, the bill includes a crucial provision to protect beneficiaries of Supplemental Security Income (SSI), Medicaid, and the Children's Health Insurance Program (CHIP) by ensuring that any increased Social Security benefits do not negatively affect their eligibility or benefit amounts for these other vital programs.