What retirees should know about a bill that could remove federal taxes from their Social Security benefits

Retirees face a tax question

Many retirees still owe federal income tax on Social Security benefits, although payments remained outside yearly returns before Congress changed that treatment through 1983 legislation during a financing crisis.

The You Earned It, You Keep It Act remains under review, and it would remove that levy for all beneficiaries if Congress approves it in its proposed form.

How benefit taxation works

Federal rules use combined income, which adds adjusted gross income, tax-exempt interest, and half of annual Social Security benefits to decide whether payments become taxable on a return.

Single filers reach the first threshold at $25,000, while married couples filing jointly begin at $32,000, before higher tiers expose larger benefit shares to federal tax each year.

Frozen thresholds widened the reach

Congress set the first benefit taxation limits for 1984, then passed 1993 legislation that added upper thresholds for households with higher combined income on later federal tax returns.

Those figures never moved with inflation, so wage growth, savings returns, and retirement withdrawals gradually pulled more older households into the same unchanged brackets over many filing seasons.

The bill offers a full exemption

Senator Ruben Gallego and Representative Angie Craig sponsor legislation named the You Earned It, You Keep It Act, which would remove federal taxes from benefits for every beneficiary.

The proposal would make the exemption permanent, unlike temporary changes to deductions that lower taxable income for some seniors but leave benefit taxation rules unchanged under the law.

High earners would pay more

The bill would apply Social Security payroll taxes to annual earnings above $250,000, creating another taxable range for workers with wages beyond the cap under the pending proposal.

For 2026, the existing payroll cap covers wages up to $184,500, leaving earnings between that limit and $250,000 outside the additional Social Security contribution range under current law.

Solvency shapes the design

Taxes on benefits support the Social Security and Medicare Hospital Insurance trust funds, so removing that revenue without an offset would deepen long-term financing concerns about scheduled payments over the coming decades.

The bill pairs a repeal of federal benefit taxation with trust-fund transfers and higher Social Security payroll taxes on covered earnings above $250,000. Supporters cite an actuarial review saying the package would allow full payments through 2058 if enacted.

Fun fact: Social Security cards first went out in November 1936, when the government began issuing cards to eligible workers across America.

A temporary deduction already applies

President Donald Trump’s 2025 tax law created an additional senior deduction, but it did not permanently eliminate federal taxes on Social Security benefits for everyone.

The deduction gives eligible people age 65 and older up to $6,000 from 2025 through 2028, with $12,000 available for qualifying married couples who file jointly under federal rules.

Little-known fact: Federal income tax is a pay-as-you-go tax, so most taxpayers pay it during the year as income is earned.

Income limits reduce that relief

The senior deduction begins phasing out once modified adjusted gross income exceeds $75,000 for single filers or $150,000 for joint returns under the temporary tax provision for seniors.

That structure means some higher-income retirees still face benefit taxes, while the Gallego-Craig bill would apply regardless of household income or filing status if Congress approves the measure.

Trust fund dates add pressure

The Old-Age and Survivors Insurance Trust Fund can pay scheduled benefits through the fourth quarter of 2032 under the latest trustees’ projection for retirement payments and survivor benefits.

After reserves run short, continuing income would cover 78% of scheduled payments unless Congress changes revenue, benefit formulas, or other program rules before that point through later legislation.

The combined funds last longer

The combined Old-Age and Survivors Insurance and Disability Insurance trust funds carry a 2034 depletion date, because disability reserves remain stronger in trustees’ projections than the Old-Age account.

That broader number matters for Social Security finances, but retirees often focus on Old-Age and Survivors Insurance because it supports monthly benefit checks for older beneficiaries and families.

Congress has not advanced it

Representative Angie Craig introduced H.R. 2909 in April 2025, while Senator Ruben Gallego brought S. 2716 in September 2025 during the 119th Congress for committee review after filing.

H.R. 2909 went to the Committees on Energy and Commerce and Ways and Means, while S. 2716 moved to the Committee on Finance for review without recorded passage.

State taxes remain separate

Federal changes would not automatically erase state-level taxes, because each state sets its own treatment for Social Security income on local returns and retirement filings under separate laws.

In 2026, eight states still taxed Social Security benefits for some residents, while West Virginia completed its phase-out and joined the larger group of states that exempt Social Security income.

Want to stay ahead of the news? Check out how the Virginia revenue jump added pressure to the unfinished budget talks.

What retirees should check

Retirees can start by calculating combined income, then comparing that total with the $25,000, $32,000, $34,000, and $44,000 federal thresholds that govern benefit taxation for different filing categories.

That review can show if the temporary deduction matters, whether pending legislation would change a return, and why careful tax planning remains useful before filing for each household.

Want to read more about the latest developments? Take a look at why Missouri is moving faster on Medicaid fraud checks as federal pressure reshapes oversight.

What stands out more, the proposal to remove federal taxes on Social Security benefits, or its potential impact on retirees? Share your thoughts.

This slideshow was made with AI assistance and human editing.

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