A new federal proposal aims to change how Social Security benefits are taxed in the United States. For many years, retirees with moderate-to-higher income levels have been required to pay federal income tax on a part of their Social Security payments. The new bill seeks to end this taxation permanently.
Lawmakers behind the bill argue that retirees should not face tax on benefits earned through decades of payroll contributions. The proposal is positioned as a direct way to give seniors more financial relief without reducing their monthly benefits.
If passed, the change would begin in 2026, and retirees filing tax returns in 2027 would see the first year of tax-free benefits. The bill has gained nationwide attention due to the rising number of Americans relying on Social Security as their main source of income.
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What does the Proposed Bill intend to Change?
The “You Earn It, You Keep It Act” aims to eliminate federal income tax on Social Security benefits for every retiree. Currently, up to 85% of benefits can be taxed based on a retiree’s “combined income,” which includes wages, investment earnings, and half of their annual Social Security amount.
The proposal removes these calculations entirely, allowing all beneficiaries to receive their full Social Security without federal tax. This change would simplify tax filing for millions of older Americans. If passed, the new rule would begin in January 2026 and take effect for the 2027 tax-filing season.
Retirees would not need to apply or make any changes, as the IRS would update its system automatically. Supporters say the tax removal would apply to all income brackets, ensuring Social Security benefits are no longer counted as taxable income for any retiree.
Why Social Security Benefits Are Currently Taxed?
Federal taxation of Social Security began in 1983, when Congress added the tax to help strengthen the Social Security Trust Fund. At the time, only the highest-earning retirees were affected. Income thresholds were set, and they were not indexed to inflation.
Because these thresholds remain unchanged today, more retirees are taxed each year. As wages rise and retirement savings increase over time, more people cross the income limits, leading to higher taxable portions of their Social Security.
The income limits that trigger taxes are:
- $25,000 for single filers
- $32,000 for married couples filing jointly
These numbers have stayed the same for over four decades. As a result, millions of retirees now pay tax on benefits even though the rule originally targeted a smaller group.
The new bill aims to reverse this trend by completely removing the taxation structure created in the 1980s.
How the Bill Plans to Replace Lost Revenue?
Ending taxation on Social Security benefits would remove an important revenue source for Social Security and Medicare. To prevent funding gaps, the bill adds new payroll tax rules for high-income earners.
Currently, Social Security payroll tax applies only to wages up to $168,600 in 2024 and about $176,000 in 2025. Income above these limits is not taxed for Social Security.
- Restoring payroll tax contributions on earnings above $250,000
- Leaving income between the wage cap and $250,000 untaxed
- Keeping middle-income workers unaffected
This structure ensures additional contributions come only from high earners. Lawmakers say the change would help strengthen Social Security’s long-term funding without reducing benefits.
Expected Impact on Retirees
If the bill becomes law, retirees would see direct and measurable financial relief. Many households currently lose part of their benefits to annual taxation once they cross the income thresholds.
Removing this tax means retirees keep the full amount of their Social Security payments, improving monthly cash flow without any change in benefit calculations. It would particularly help individuals who take withdrawals from retirement accounts, which often push their combined income above taxable limits.
Retirees with moderate investment income or part-time earnings would no longer have to track how these earnings affect their taxable Social Security portion. The change also reduces the risk of unexpected tax bills during filing season.
By simplifying the system, the bill aims to make retirement budgeting easier and more predictable for older adults.
Who Introduced the Bill and Where It Stands
The bill was introduced by Sen. Ruben Gallego of Arizona and Rep. Angie Craig of Minnesota, who both support permanent tax relief for retirees and a stronger Social Security program. They argue that retirees should keep the full value of their earned benefits.
Right now, the bill is in the early stages. It must clear committees, gain bipartisan backing, and pass both the House and Senate before becoming law. This process can take time because tax changes require detailed review.
- Earlier proposals focused on reducing taxes, not removing them completely.
- This bill is one of the most comprehensive attempts to eliminate benefit taxation.
- Lawmakers are examining how the change would affect long-term funding.
Its progress will depend on budget negotiations and whether Congress agrees on raising payroll taxes for high-income earners to replace lost revenue. The outcome of these discussions will decide how fast the bill moves forward.
What Retirees Should Do While Waiting?
Retirees do not need to take any action yet, because the proposal has not been finalized. Until the law officially changes, Social Security benefits remain taxable under current rules.
Those nearing retirement may want to review how their withdrawals, pensions, or part-time earnings affect their combined income. This can help avoid unexpected tax liabilities during filing season.
Retirees should follow updates from the Social Security Administration and IRS, as both agencies will issue new guidance if the bill advances. Any tax changes would automatically appear in future IRS tax forms once the law is enacted.
Consulting a tax professional could also help retirees prepare for adjustments that may arrive once the legislation is finalized.
The proposal to permanently end federal taxation of Social Security benefits represents one of the largest potential changes to retirement taxation in decades. By removing taxes on benefits and adjusting payroll contributions for high earners, the bill aims to give retirees more financial security without reducing program funding.
While the idea has gained significant national attention, its future depends on legislative approval and budget negotiations. For now, retirees can stay informed and continue planning under existing tax rules until official changes take place.