HR25119th CongressWALLET

FairTax Act of 2025

Sponsored By: Representative Carter (GA)

Introduced

Summary

Replaces federal individual income and payroll taxes with a national sales tax. This plan imposes a 23% consumption tax starting January 1, 2027, creates a monthly Family Consumption Allowance rebate, and redesigns trust fund allocations for Social Security and Medicare.

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  • Families: Creates a monthly rebate equal to the sales tax rate times the monthly poverty guideline. Rebates are paid by the Social Security Administration to a designated adult and require annual registration.
  • Workers and beneficiaries: Repeals payroll taxes and the estate and gift tax regimes effective 2027 and reallocates sales tax receipts to trust funds. For 2027 the bill directs about 27% to OASI and DI and about 7.7% to HI and SMI.
  • States and businesses: Establishes destination-based rules and a federal‑state cooperative system where sellers generally collect the tax and business purchases and bona fide investments are excluded from tax.

Bill Overview

Analyzed Economic Effects

20 provisions identified: 4 benefits, 7 costs, 9 mixed.

Monthly rebate to offset sales tax

If enacted, families that register would get a monthly rebate to offset the sales tax on basic spending. The payment would equal the tax rate times your monthly poverty level, adjusted for married couples. The Social Security Administration would pay it to a named adult. Payments would start January 1, 2027, and arrive on or before the first business day each month.

Monthly credits for registered businesses

If enacted, registered sellers could claim monthly credits. A filer who reports on time could get at least $200 or 0.25% of tax remitted, capped at 20% of tax due. Credits could cover bad debts (after 180 days), certain insurance proceeds, and a one‑time credit for inventory held on December 31, 2026 and sold in 2027. Only one Chapter 2 credit could be used for the same sale.

Social Security funding and reporting

If enacted, part of the sales tax would be set each year to fund Social Security and Medicare at levels equal to today’s payroll taxes. For 2027, fixed shares would apply, then updated shares would be announced at least six months ahead. Employers would have to report wage and earnings data to the Social Security Administration and give each worker a copy. Self‑employment income would be defined for benefit reporting.

National sales tax on purchases

This bill would add a national sales tax on most goods and services you buy. In 2027, the rate would be 23%. After 2027, the rate would be 14.91% plus Social Security and Medicare parts set each year. You would pay this rate on taxable purchases starting January 1, 2027.

Heavy penalties for tax nonpayment

If enacted, failing to register could cost $500. Not collecting or wrongly claiming exemptions could cost the greater of $500 or 20% of tax. Not remitting collected tax could cost the greater of $1,000 or 50% of tax, plus possible jail time. Late filings face monthly penalties up to 12%, with limited waivers.

New taxes on bank and investment services

If enacted, many financial services would be taxed, including bank and broker fees and some interest margins. For accounts, the tax base would be any gap between a basic rate and the account’s rate, times the balance. For loans, it would be the extra interest paid above the basic rate, times the loan amount. Some financing leases would be split: the sale part taxed at lease start, interest taxed as a financial service. Taxes would be charged when statements are issued, at least quarterly. Foreign providers serving U.S. residents would need a U.S. tax agent who is responsible for collecting and paying the tax.

Wind-down of IRS and old records

After fiscal year 2029, this bill would block funding for many IRS tasks tied to old taxes and some payroll data transfers to Social Security. Federal records for repealed taxes would be destroyed by the end of fiscal year 2029. Records needed to compute Social Security benefits or to finish active court cases would be kept until they are no longer needed.

How states would run the tax

If enacted, states with a sales tax could agree to collect the national sales tax and keep a 0.25% fee. States would have to send funds to the U.S. within 5 days or pay interest. Sales would be taxed based on where goods are delivered, where services are used, or where buyers live for certain services. Government buyers would pay the tax, and government enterprises would collect it once they sell over $2,500 in a quarter. The federal government would help states share data and work together.

Repeal of many old tax rules

If enacted, many sections of the old tax code listed in the bill would be repealed. This includes rules for information returns, assessments, penalties, and other detailed tax provisions. Filing, audits, and enforcement would change as these rules are removed.

Seven-year sunset if repeal fails

If enacted, the entire Act would end for years beginning after December 31 of the year the seven‑year window closes unless the Sixteenth Amendment is repealed in time. The Sales Tax Bureau would continue for six more months after that date to wind down.

Rules for imports and non-cash pay

You would have to pay the national sales tax on goods or services you buy abroad and import for use in the U.S. Employers would need to remit tax on wages if they are treated as taxable services. If you are paid in goods or services instead of money, the seller would owe the tax in cash based on fair market value. These rules would start January 1, 2027.

Tax on personal use and discounts

If you take business or export items for personal use, you would owe tax on their fair market value at the time you convert them. Large employee discounts over 20% of the public price would be taxed on the amount above 20%. Gifts, prizes, or job payments of untaxed items from a registered person could also be taxed.

New sales tax rules for sellers

Starting January 1, 2027, sellers who collect the national sales tax would have to register and name a tax contact. A small seller is under $20,000 collected in any prior 12 months; a large seller is $100,000 or more. Non‑small sellers would move weekly tax into a separate bank account within 3 business days. Large sellers would remit that balance the first business day after the week and may have to pay electronically. Large sellers would also post security of the greater of $100,000 or 1.5 times their average monthly tax for the last 6 months. Sellers must give receipts and keep records for 6 years; buyers claiming intermediate or export exemptions keep records 7 years.

Appeals, deadlines, and fee help

If enacted, you would usually have 60 days to appeal after a final bill. Deadlines falling on weekends or holidays would move to the next business day. If you win a dispute, you could recover reasonable lawyer and professional fees unless the government’s position was substantially justified. Filing a Tax Court petition could cost no more than $60. The government would carry the burden to persuade, but you must produce records. Some notice and deficiency definitions would be tightened for certain cases.

Stronger enforcement and taxpayer protections

Tax authorities would gain powers to levy, garnish wages, and file liens to collect sales taxes. Some property and income would be protected: household items up to $15,000 total and monthly income up to 150% of the poverty level. A Problem Resolution Office could stop collection to prevent hardship and order returns of levied property. Authorities could issue summonses for records, but not while a related criminal referral is active. People who help find tax fraud could get awards.

Payment extensions, interest, and refunds

If enacted, you could ask to delay a tax payment up to 6 months, or up to 12 months if abroad. Underpayments would accrue interest from the due date at the Federal short‑term rate. Overpayments would earn interest if refunds take more than 60 days after you apply. Refunds of reported overpayments must be paid within 60 days of application or interest starts.

Financial and cross-border tax rules

If enacted, Treasury would set monthly short‑, mid‑, and long‑term Federal rates that apply the next month. Some sales of copyrights or trademarks would be taxed as services if the deal is really about the services that created them. Payers of U.S.-source income to foreign persons would generally withhold 23%, unless a tax treaty sets a lower rate or the portfolio‑debt exception applies.

Small breaks for casual sales

If enacted, personal imports would be tax-free up to $400 per year. Casual or one-time sales not done as a business would be tax-free up to $1,200 per year. Sales of financial intermediation services would be tax-free up to $10,000 per year, except for large sellers.

Hobby test limits some exemptions

If enacted, activities not run for profit could lose access to certain exemptions and credits. An activity would count as for‑profit if, in at least two of the last three years, gross sales were greater than purchases plus wages plus taxes for that year.

New Treasury offices for the tax

If enacted, Treasury would set up a Sales Tax Bureau to run the national sales tax where needed and an Excise Tax Bureau for certain excise taxes. The Office of Revenue Allocation would be inside the Sales Tax Bureau. The Secretary could appoint up to five assistant general counsels outside normal civil service rules.

Sponsors & CoSponsors

Sponsor

Carter (GA)

GA • R

Cosponsors

  • Clyde

    GA • R

    Sponsored 1/3/2025

  • Carter (TX)

    TX • R

    Sponsored 1/3/2025

  • Perry

    PA • R

    Sponsored 1/3/2025

  • Burlison

    MO • R

    Sponsored 1/3/2025

  • Rutherford

    FL • R

    Sponsored 1/3/2025

  • Davidson

    OH • R

    Sponsored 1/3/2025

  • Biggs (AZ)

    AZ • R

    Sponsored 1/3/2025

  • Strong

    AL • R

    Sponsored 1/3/2025

  • McCormick

    GA • R

    Sponsored 1/3/2025

  • Loudermilk

    GA • R

    Sponsored 1/6/2025

  • Harris (MD)

    MD • R

    Sponsored 1/7/2025

  • Harris (NC)

    NC • R

    Sponsored 2/4/2025

  • Collins

    GA • R

    Sponsored 2/14/2025

  • Moore (AL)

    AL • R

    Sponsored 3/31/2025

Roll Call Votes

No roll call votes available for this bill.

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