FairTax Act of 2025

Repeal of Existing Taxes: The bill repeals the federal income tax (Section 101), payroll taxes (Section 102), and estate and gift taxes (Section 103), which the bill finds can reduce savings, investment, and upward social mobility.

Family Consumption Allowance: Qualified families are eligible to receive a monthly sales tax rebate based on the monthly poverty level to assist with consumption (Section 301).

Tax Exemptions for Specific Goods: Certain items such as wearing apparel, school books, fuel, and provisions are exempt from levy, seizure, and garnishment (Section s 602(b)(1)).

Business and Investment Incentives: The tax is not imposed on property purchased for business purposes or for investment purposes (Section 102).

Business Use Conversion Credit: Provides a credit for those converting business-used property to personal use (Section 202).

Administrative Credits: Offers credits to taxpayers to assist with the costs of administration (Section 204).

Improved Social Security Tracking: Employers are required to submit wage information to the Social Security Administration, which is necessary to calculate benefits (Section 903(a)).

Transparency for Workers: Employers must provide a copy of the wage submission made to the Social Security Administration to each employee (Section 903(a)).

Clarification of Wages: The bill defines wages to include tips and self-employment income, while specifically excluding benefits like insurance, pensions, and government entitlements (Section 903(b)).

Revenue Allocation for Social Safety Nets: The bill dictates how sales tax revenue is distributed among the general revenue and various Social Security and Medicare trust funds (Section 904(a)).

Predictable Rate Setting: The Social Security Administration is required to announce the old-age, survivors, and disability insurance rate at least 6 months before the start of the calendar year (Section 904(d)).

New National Sales Tax: A tax is imposed on the use or consumption of taxable property or services, with a rate of 23 percent for the year 2027 (Section 101(b)(1)).

Taxation of Wages: For taxable employers, the tax must be remitted on wages or salary paid to employees (Section 103(b)(2)).

Strict Registration Requirements: Failure to register as a seller can result in a penalty of $500 and a prohibition on selling taxable property or services (Section 502 and 504(a)).

Penalties for Non-Compliance: The bill establishes various penalties for reckless or willful failures to collect, remit, or pay taxes, which can include fines or imprisonment (Section 504).

Loss of Rebates for Failure to Register: Qualified families may cease receiving the monthly sales tax rebate if they fail to complete the required annual registration (Section 302(f)).

Tax on Employee Discounts: If an employer offers a discount that exceeds 20 percent of the regular price, the excess amount is subject to tax (Section 903(g)).

Taxation of Foreign Income: All persons in control of income belonging to nonresidents, foreign partnerships, or foreign corporations must withhold a 23 percent tax (Section 905(a)).

Burden on Employers: Employers are tasked with submitting specific wage information to the Social Security Administration in a prescribed form (Section 903(a)).

Potential Records Destruction: Federal records related to the administration of repealed taxes are scheduled to be destroyed by the end of fiscal year 2029, unless needed for Social Security or litigation (Section 301(b)).

Economic Uncertainty via Sunset Clause: All provisions of the act, including the tax structure, may cease to apply after a 7-year period if the Sixteenth Amendment is not repealed (Section 401).