Planning for retirement often means juggling multiple income sources, and for most older adults — about 97% — Social Security benefits are a critical pillar of that plan. But many retirees today pay federal income tax on some portion of those benefits.
A new legislative proposal, the You Earn It, You Keep It Act, aims to put an end to that taxation permanently, beginning in 2026 — with important implications for both retirees and the long-term solvency of Social Security.
What the You Earn It, You Keep It Act Proposes
Here’s what the proposed bill would change:
| Feature | Details |
|---|---|
| Goal | Eliminate federal income taxes on Social Security benefits entirely for all beneficiaries. |
| Introduced By | A U.S. Senator (D-state) and a Representative (D-state) with parallel legislation in both chambers. |
| Effective Year | Expected to apply starting in 2026 tax year. |
| Funding Mechanism | Raise payroll tax coverage by applying the Social Security payroll tax to all wages above $250,000, eliminating the current cap (~$176,100 for 2025). |
| Trust Fund Extension | Estimated to extend Social Security trust fund solvency from current projections (≈2034) to around 2058, adding over two decades. |
| Who Benefits | All Social Security recipients, especially middle-income and lower-income retirees. High earners would contribute more under payroll tax changes. |
Current Taxation on Social Security Benefits
Today, many retirees face taxes on their benefits depending on their total income. For example:
- Single filers with combined income between approximately $25,000 to $34,000 may pay taxes on up to 50% of their benefits.
- Married couples filing jointly with combined income between roughly $32,000 to $44,000 fall into similar 50% taxation brackets.
- If income exceeds those ranges, up to 85% of benefits may be taxed.
This taxation often feels unfair to retirees who believe they already paid into the system for decades.
How the Proposed Bill Seeks to Offset Revenue Loss
Ending federal taxes on Social Security benefits would reduce tax revenues. The You Earn It, You Keep It Act addresses this in two main ways:
- Payroll Tax Expansion: By removing the cap on wages subject to Social Security payroll tax for earnings above $250,000, higher-income workers would contribute more, helping to offset lost revenue.
- Trust Fund Stability Measures: The changes are projected to push the depletion date of the Social Security trust fund from about 2034 to 2058, thereby ensuring full benefit payments for longer.
What Retirees Could Gain
If the bill becomes law, retirees could see several benefits:
- More take-home pay, especially for those who currently pay federal taxes on their benefits.
- Simplification of tax planning: no need to estimate taxable portion of Social Security for many households.
- Boosted financial security, as extending solvency reduces risk of benefit cuts.
- Reassurance that Social Security remains a reliable source in retirement budgets.
Political & Practical Challenges
There are some hurdles and uncertainties:
- Any major tax change requires bipartisan support in Congress. It is unlikely to advance solely through reconciliation.
- The proposal must address concerns about fairness: many people consider Social Security contributions already their earned benefits.
- Some opposition comes from taxpayers who may object to tax increases on high earners.
- Implementing payroll tax increases and ensuring accurate administration will be complex.
The You Earn It, You Keep It Act could represent a historic shift in how the U.S. treats Social Security benefits — moving from partial taxation to full exemption. If passed, retirees would no longer pay federal income taxes on benefits, payroll taxes would be restructured for high earners, and the trust fund’s solvency could be extended significantly.
While prospects are uncertain, the potential gains for retirees are substantial. This proposal deserves close attention from anyone depending on Social Security for retirement income.
FAQs
When would this change begin if the bill becomes law?
The expected effective date is the 2026 tax year, meaning retirees would see the benefit in their tax filings for that year.
Will everyone benefit equally from this proposed law?
All recipients of Social Security would benefit from tax exemption. However, higher earners will see additional impact, since the payroll tax changes shift more responsibility onto them to fund the change.
Could this legislation fix projected Social Security funding shortfalls?
Yes. The proposal is projected to extend the trust fund’s ability to pay full benefits until approximately 2058, rather than facing reductions around 2034 without reform.