For many retirees, Uncle Sam gives with one hand and takes away with the other. But that could soon change.
A bill recently introduced in the U.S. Senate would exclude Social Security benefits from federally taxable income, effectively making them tax-free.
Currently, about 40% of people receiving Social Security owe federal income taxes on their benefits. But that would no longer be the case if this bill becomes law.
The legislation — called the “You Earned It, You Keep It Act” — was introduced by Sen. Ruben Gallego (D-Ariz.) in September. Here’s what you need to know about how Social Security taxation works now, what the bill would change and where the bill stands.
How Social Security benefits are taxed now
Social Security benefits may be considered taxable income, despite that Social Security represents income you were already taxed on during your working years. Half of your Social Security benefit is included in what the government calls your “combined income,” which is used to determine how much of your benefit is subject to federal tax.
If you file federal taxes as an individual and earn a combined income of:
- between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits.
- more than $34,000, up to 85% of your benefits may be taxable.
If you file federal taxes jointly and earn a combined income of:
- between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits.
- more than $44,000, up to 85% of your benefits may be taxable.
These thresholds haven’t been changed since they were created in 1983. As a result, the number of retirees paying taxes on their Social Security benefits has ballooned over time, from less than 10% in 1984 to 40% today.
What the bill would change
If passed into law, the You Earned It, You Keep It Act would repeal federal taxation of Social Security benefits starting in 2026.
Eliminating a tax that’s been in place for decades could cause some concern, especially given that Social Security’s retirement trust fund is currently projected to be depleted in 2033.
Gallego’s legislation addresses the lost tax revenue. He said it would bring in enough tax revenue to enable the federal government to continue paying all Social Security benefits through 2058.
The bill would accomplish that by requiring people who earn more than $250,000 per year to pay Social Security payroll taxes on earnings above that amount. As of 2025, only a worker’s first $176,100 in earnings is subject to the payroll taxes that fund Social Security.
What happens next?
The You Earned It, You Keep It Act is by no means guaranteed to become law and is in the earliest stages of the legislative process. After Gallego introduced it, it was sent to committee, but nothing has happened with it since then.
Rep. Angie Craig (D-Minn.) introduced equivalent legislation in the U.S. House in April, but it has been stuck in the committee stage ever since. She also introduced previous versions of the bill in 2024 and 2022, both of which stalled in committees. Most bills never make it past that stage.
Assuming Gallego’s bill passes committee, the next step would be for the full Senate to vote on it. If the House then passes an identical version, the president could sign it into law.
In the meantime, you can contact your senators and representatives to let them know how you feel about Gallego’s new bill and Craig’s 2025 version, respectively.
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