For decades, millions of retirees have been frustrated by the reality of paying federal taxes on their Social Security benefits that they have contributed throughout their working lives. Under the current taxation rules, one can be taxed up to 85% of their monthly benefits. This significantly reduces the amount one should live on during retirement.
However, this could change soon, following a new proposal in Congress, the “You Earned It, You Keep It Act,” which could permanently end federal taxes on Social Security benefits. This bill could also reshape finances and boost Social Security benefits for retirees starting in 2026.
How Are Social Security Benefits Taxed Now?
The taxation of Social Security benefits started in 1984. During that time, less than 10% of beneficiaries paid any tax on their benefits. Additionally, the thresholds set were $25,000 for individuals and $32,000 for married couples. Anyone earning above these thresholds had to pay between 50% and 85% in taxes.
Unfortunately, these income thresholds are still active today, and they have never been adjusted for inflation. Currently, 56% of retirees pay some amount of tax on their benefits even though Social Security was designed to be tax-free in its early years.
What the New Bill Would Do
The You Earned It, You Keep It Act, introduced by Sen. Ruben Gallego (D-Ariz.) in the Senate and Rep. Angie Craig (D-Minn.) in the House, would:
- End the taxation of Social Security benefits starting in 2016. Retirees filing 2026 taxes in early 2027 would see their benefits become tax-free.
- Make the repeal permanent. This bill would permanently do away with the taxation of Social Security benefits.
- Change payroll tax rules for high-earners. To make up for the lost income, the new plan would apply the 6.2% of Social Security payroll tax to wages above $250,000, up from the current cap of $176,000. Self-employed people would still pay the full 12.4% (Employees currently pay 6.2% of their wages, and employers pay another 6.2%).
According to experts, these adjustments would even keep Social Security solvent until at least 2058, which is 24 years longer than the current projection of 2034.
How It Differs from Trump’s “Big, Beautiful Bill”
President Trump campaigned on eliminating taxes on Social Security benefits. However, his July 2025 GOP tax package fell short and instead introduced a new $6,000 senior tax deduction for certain retirees. This only provided partial relief instead of full repeal as promised during the campaigns.
Who Would Benefit
If the bill becomes law, taxes would be eliminated from Social Security benefits. This would mean that:
- Retirees with lower incomes would not have to deal with complicated tax formulas anymore.
- Middle-income seniors would get to keep more of their benefits instead of losing thousands of dollars to taxes each year.
- Wealthier retirees would also pay no tax on their benefits, but if they earn more than $250,000 while still working, they would owe higher payroll taxes.
Why Congress May Still Struggle to Pass It
Although the idea of eliminating Social Security taxes is garnering support from both Republicans and Democrats, there is division in matters regarding the funding mechanism. Republicans are opposed to raising taxes on high earners. Instead, they prefer other forms, such as raising the retirement age. Democrats, on the other hand, argue that wealthier Americans should contribute more.
Despite the struggles between the two sides, an AARP survey indicates that 85% across both parties support raising taxes if it will protect the Social Security fund from depletion.
When Could Retirees See the Change?
If Congress passes the “If You Earned It, You Keep It Act” this fall, retirees would see the change in 2026. That means, retirees would file tax-free returns in early 2027.
Conclusion
Retirees have paid taxes on their Social Security benefits for more than four decades now. With bipartisan interest and growing pressure from retirees, the fight for the elimination of these taxes might bear fruit.
For now, retirees should stay up-to-date with news from Social Security and Congress and hope that the bill passes.