Throughout your working career, you will pay a portion of your earnings into the dedicated Social Security payroll tax. Later, upon retirement, you will then be able to claim back your contributions in the form of your retirement benefits. In theory, it is a simple system: you put money in when you are working and you later claim back that same money.
In actuality, it is not as simple as that because as of 1984, a portion of your Social Security income is subject to taxation if your combined income exceeds a certain threshold. The taxing of benefits had been introduced in order to maintain the financial health of the program. However, many seniors and advocates feel that this is unfair since Social Security benefits are the hard-earned income of seniors.
Subsequently, during the 2024 presidential campaign, President Donald Trump repeatedly made promises to eliminate taxes on Social Security benefits if elected to office, and in July, the One Big Beautiful Bill Act was passed. The OBBBA does not eliminate taxes on Social Security benefits, however, it does provide seniors with an additional tax deduction for a temporary period. Due to this additional tax relief, around 88% of seniors will now be exempt from paying taxes on Social Security, according to the White House.
Since the OBBBA did not eliminate taxes on benefits, Democratic Senator Ruben Gallego of Arizona has now introduced a new bill aimed at eliminating taxes on Social Security benefits permanently. Here is what you need to know.
You Earn It, You Keep It Act — what will it do?
Last week, Democratic Senator Ruben Gallego of Arizona introduced the You Earn It, You Keep It Act which is aimed at permanently eliminating taxes on Social Security benefits. Earlier in the year in April, a House version of the You Earn It, You Keep It Act was also introduced by Democratic Representative Angie Craig of Minnesota.
In a press release Sen. Gallego stated the following: “Like a lot of Americans, I’ve been paying into Social Security since my first job at fourteen. But despite decades of paying into the system, seniors are still forced to pay taxes on their hard-earned benefits – all while the ultra-wealthy barely pay into the system at all. Trump claimed he ended taxes on Social Security. My bill actually does it. Permanently.”
What is Sen. Gallego’s plan?
If the You Earn It, You Keep It Act is passed, it would bring a permanent end to the federal taxation of Social Security benefits. Currently, up to 85% of your benefit income is subject to taxation if your combined income exceeds a certain threshold. As such, under Sen. Gallego’s plan, taxes on benefits will be eliminated and the wage cap will be increased to $250,000 to maintain the financial health of the program.
The wage cap for 2025 is $176,100 which means that income earned up to the amount of $176,100 is considered when you are paying into Social Security payroll taxes. The Board of Trustees has, however, projected the wage cap to increase to $183,600 in 2026.
“Seniors earned their Social Security — my new bill ACTUALLY ends the unfair tax while Trump sold them out to billionaires,” Sen. Gallego wrote in a post on X.
The bill has since been introduced in the Senate. The You Keep It, You Earn It Act has also garnered the support of the nonpartisan advocacy group, The Senior Citizens League.
“The Senior Citizens League (TSCL) is pleased to see Senator Gallego introducing the Senate version of the You Earned It, You Keep It Act. This legislation provides long-overdue tax relief for seniors who have worked hard and paid into Social Security their entire lives. Eliminating federal taxes on Social Security benefits is a commonsense step to ensure older Americans can keep more of what they’ve earned. We strongly support this bill and commend Senator Gallego and Representative Craig for their leadership,” TSCL executive director Shannon Benton stated in a press release.