A new bill in Congress could permanently eliminate federal taxes on Social Security benefits — a change that would impact millions of retirees. The You Earn It, You Keep It Act would also strengthen the program's trust funds by requiring higher earners to contribute more.
Rep. Angie Craig (D-MN) first introduced the legislation in 2024, and Sen. Ruben Gallego (D-AZ) introduced a Senate version last week. The proposal arrives just months after President Donald Trump signed the One Big Beautiful Bill Act, which includes a provision that created a temporary tax deduction for seniors. While that measure offered some relief, it did not remove federal taxes on Social Security benefits altogether.
Don't Miss:
- Your Last Chance to Invest in Pacaso Before Their Global Expansion — Offer Ends Sept 18
- Kevin O'Leary Says Real Estate's Been a Smart Bet for 200 Years — This Platform Lets Anyone Tap Into It
How Benefits Are Taxed Today
Currently, many retirees may owe federal income tax on their Social Security, depending on overall income. Taxes are based on a formula known as "combined income," which includes adjusted gross income, tax-exempt interest, and half of Social Security benefits.
- Individuals with combined income of $25,000 to $34,000 may pay tax on up to 50% of benefits.
- Married couples filing jointly with $32,000 to $44,000 face the same threshold.
- Higher earners — above $34,000 for singles or $44,000 for couples — may pay tax on up to 85% of their benefits.
What the New Bill Would Do
Gallego's legislation would permanently eliminate federal income taxes on Social Security benefits. To offset the loss of revenue, the bill would expand the Social Security payroll tax so that it applies to annual wages above $250,000. In 2025, only earnings up to $176,100 are subject to the payroll tax.
Trending: They Sold Their Last Real Estate Company for Nearly $1B — Now They're Building the Future of U.S. Industrial Growth
According to Gallego's office and an earlier analysis from the Social Security Administration's chief actuary, the change would extend the program's ability to pay full benefits until 2058 — 24 years beyond the current projection of 2034.
Advocates Applaud the Proposal
Several senior advocacy groups have voiced strong support. "Eliminating federal taxes on Social Security benefits is a commonsense step to ensure older Americans can keep more of what they've earned," Shannon Benton, executive director of The Senior Citizens League, said in Gallego's statement.
Social Security Works President Nancy Altman also praised the bill in Gallego's statement, saying it both cuts taxes for retirees and strengthens Social Security's finances by requiring wealthier Americans to pay in at the same rate as everyone else.
How It Differs From Trump's Deduction
Trump signed the One Big Beautiful Bill Act into law in July. It creates a temporary deduction of up to $6,000 for taxpayers aged 65 and older, available from 2025 through 2028.
See Also: Bill Gates Says Climate Change ‘Needs to Be Solved' — This Award-Winning Building Material Is Tackling It Head-On
The full deduction applies to individuals with up to $75,000 in income and married couples with up to $150,000. It phases out at higher income levels. Tax experts told CNBC that middle-income retirees would likely benefit most, while many low-income seniors already pay no federal tax on benefits.
Gallego's plan, by contrast, seeks to eliminate those taxes entirely for all beneficiaries, regardless of income, while also addressing the long-term solvency of Social Security.
What's Next
Whether the You Earn It, You Keep It Act gains traction in Congress remains uncertain. The issue of how to balance tax relief for retirees with the financial health of Social Security is likely to spark debate in the months ahead.
For now, the bill has put the spotlight back on a question millions of retirees care deeply about: after a lifetime of contributions, should Social Security benefits ever be taxed at all?
Read Next: ‘Scrolling To UBI' — Deloitte's #1 fastest-growing software company allows users to earn money on their phones. You can invest today for just $0.30/share.
Image: USA Today Network
