Social Security is an insurance program, meaning that what you put in is what you will eventually get out at a later stage. During your working years, you will contribute a percentage of your earnings towards the dedicated Social Security payroll tax, and later once you retire, you will become eligible to claim back these contributions in the form on your monthly benefits.
Under the 1983 Amendment to the Social Security Act, however, it was decided that up to 50% of your benefit may be subject to taxation if your income exceeds a certain threshold. Going forward another ten years to 1993, and it was then decided that up to 85% of your benefit may be subject to taxation, with the income threshold also increasing.
The issue of taxes on benefits has since remained a topic of debate, and during the 2024 campaign trail, the now elected President Donald Trump repeatedly made promises to eliminate taxes on benefit income if elected to office. Eliminating taxes on benefits may be easier said than done, however, and as such, the president’s mega bill which was signed into law in July, The One Big Beautiful Bill Act, did not include the elimination of taxes on Social Security.
Now, however, a senator from Arizona has proposed a new bill aimed at permanently eliminating federal taxes on Social Security benefits for all. The proposed bill is called the You Earn It, You Keep It Act, and here is everything you need to know.
You Earn It, You Keep It Act
At the beginning of the month, a bill called the You Earn It, You Keep It Act was introduced by Sen. Ruben Gallego, D-Arizona. If passed, this bill would bring a permanent end to taxes on Social Security benefits. Rep. Angie Craig, D-Minnesota had also previously introduced a House version of this bill in April. Currently, up to 85% of your Social Security benefits are taxable if you file the following (as per the SSA):
- Federal tax return as an “individual” and your “combined income” exceeds $25,000.
- Joint return, and you and your spouse have “combined income” of more than $32,000
“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,” Sen. Gallego said previously in a statement.
As such, if the You Earn It, You Keep It Bill is passed, beneficiaries to the program will no longer be required to pay taxes on their benefits even if their combined incomes exceed the stipulated thresholds. Additionally, the proposed bill would also increase the wage cap to $250,000. For 2025, the Social Security wage cap stands at $176,100, however, the Board of Trustees have estimated that the wage cap will increase to $183,600 in 2026.
Overall impact on Social Security
Unlike the One Big Beautiful Bill Act, which includes only a temporary $6,000 tax deduction for citizens, the You Earn It, You Keep It Act aims to permanently eliminate taxes on benefits. Additionally, the tax relief under the OBBBA is projected to accelerate the depletion dates for the projected Social Security shortfall. According to the annual trustees report, the shortfall will result in a 23% cut to benefits starting in 2033 if no change is enacted now.
According to Gallego’s office, however, “the You Earned It, You Keep It proposal would extend the Social Security trust funds’ ability to pay benefits in full and on time for 24 years, or until 2058.” This is likely due to the significant wage cap increase under the proposed bill. As such, the You Earn It, You Keep It Act has since garnered the support of nonpartisan senior advocacy group, The Senior Citizen’s League.
“Eliminating federal taxes on Social Security benefits is a commonsense step to ensure older Americans can keep more of what they’ve earned,” TSCL Executive Director Shannon Benton shared in a statement.