REAL AMERICA Act
Sponsored By: Representative Cohen
Introduced
Summary
Creates new tax deductions for cash tips and overtime while rewriting partnership tax rules for investment managers and ending the taxation of Social Security benefits. This bill would add targeted itemized deductions, change how carried interest and related partnership income are taxed, and remove Social Security benefits from gross income for affected years.
Show full summary
- Retirees and beneficiaries: Social Security benefits would not be included in taxable income for taxable years beginning after December 31, 2025. The bill directs an annual appropriation to Social Security and Railroad Retirement funds equal to any reduction in transfers caused by that change.
- Workers who earn tips or overtime: Taxpayers could deduct cash tips reported to employers and qualified overtime paid under the Fair Labor Standards Act for taxable years after 2025. Each deduction phases out above a modified adjusted gross income threshold of $450,000 for single filers and $900,000 for joint filers.
- Investment managers and partners: Income and gains tied to "investment services partnership interests" would generally be treated as ordinary income, lose qualified dividend and some capital gains preferences, and face limits on deductible losses.
- Partnerships and enforcement: Transfers of partnership interests for services are treated as distributions based on liquidation value and as if an early sec. 83(b) election were made unless the recipient timely elects otherwise. The bill adds reporting rules, a 40% accuracy-related penalty for avoidance, and brings affected items into self-employment and Social Security calculations.
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Bill Overview
Analyzed Economic Effects
5 provisions identified: 4 benefits, 1 costs, 0 mixed.
Lower taxes on overtime pay
If enacted, you could deduct qualified overtime pay shown on your W‑2. This means overtime required by federal law and paid above your regular rate. The deduction would end if your modified AGI is over $450,000 single or $900,000 joint. Employers would list your overtime total on the W‑2. It would start for tax years after December 31, 2025.
Tip workers get a tax deduction
If enacted, you could deduct cash tips that you report to your employer. The deduction would end if your modified AGI is over $450,000 single or $900,000 joint. It would apply for tax years after December 31, 2025. The IRS would update withholding tables, which could change take‑home pay.
Backfill Social Security trust funds
If enacted, the government would pay each Social Security and Railroad Retirement fund the amount lost from not taxing benefits. The money would come from the U.S. Treasury each year. This aims to keep checks funded even as tax rules change.
Carried interest taxed as ordinary income
If enacted, most carried‑interest and similar fund‑manager gains would be taxed as ordinary income, not capital gains. Some true invested capital could be excepted if strict tests are met. The income would count for self‑employment tax and Social Security earnings. The bill would raise avoidance penalties to 40% and tighten rules for publicly traded partnerships, with a 10‑year transition. Many changes would apply to tax years ending after enactment.
Stop taxing Social Security checks
If enacted, Social Security benefits would no longer be counted as taxable income under section 86. This would lower taxes for people who now pay tax on part of their benefits. The change would apply to tax years after December 31, 2025.
Sponsors & CoSponsors
Sponsor
Cohen
TN • D
Cosponsors
Carson
IN • D
Sponsored 4/3/2025
Roll Call Votes
No roll call votes available for this bill.
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