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Retirement

Social Security

New Bill Aims to 'Actually' End Taxes on Social Security

Photo-illustration of Social Security card in a pile of pennies

Money; Getty Images

Sen. Ruben Gallego, D-Ariz., says it's time to stop taxing older adults twice — and start taxing millionaires more. That's the idea behind a bold new bill that would permanently end federal taxes on Social Security benefits while raising payroll tax caps for high earners to keep the program afloat.

Gallego introduced the You Earn It, You Keep It Act last week. A House version of the legislation, sponsored by Rep. Angie Craig, D-Minn., was introduced in April.

According to Gallego, the current system of benefit taxation is unfair to retirees, many of whom rely on Social Security benefits as a significant, if not sole, source of income.

"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," he said in a statement.

In addition to nixing federal taxes on benefits, Gallego's proposal would raise the Social Security payroll tax cap to include annual earnings over $250,000. Currently, only the first $176,100 of wages is subject to Social Security payroll taxes.

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This is a hot-button issue because, despite President Donald Trump's campaign promise to eliminate taxes on Social Security, his One Big, Beautiful Bill Act included only a deduction aimed at reducing taxes on benefits. Under the law, adults 65 and older may claim a "senior bonus" of up to $6,000 ($12,000 for couples) if they meet income thresholds: up to $75,000 in modified adjusted gross income for individual filers and $150,000 for married couples filing jointly.

In addition, the One Big, Beautiful Bill Act's provision is temporary, applying only to tax years 2025 through 2028. While the deduction may provide short-term relief for older adults, it does not eliminate Social Security taxes entirely.

"Trump claimed he ended taxes on Social Security," Gallego said in his Sept. 4 statement. "My bill actually does it. Permanently."

Retirement advocates have voiced strong support for Gallego’s plan. According to the senator's statement, The Senior Citizens League, a nonpartisan advocacy group, is calling the proposal a “commonsense step to ensure older Americans can keep more of what they’ve earned.”

However, the bill is likely not to be without its critics who worry about the financial implications of eliminating benefit taxes. For example, according to the Center on Budget and Policy Priorities, eliminating all taxes on Social Security benefits could have a negative effect on its solvency crisis.

(The program's trust funds are expected to be depleted in the coming years, due largely to an aging population and fewer workers per retiree, which threatens its ability to pay full benefits in the future.)

"The proceeds from taxing Social Security benefits provide an increasingly important source of income for both Social Security and Medicare," Paul N. Van de Water, a senior fellow at the progressive think tank, wrote in a July blog post. "Without that income, the programs would face greater funding shortfalls, and the dates on which the trust funds would be depleted... would occur earlier."

Gallego argues that, if passed as is, the You Earn It, You Keep It Act's lifted payroll tax cap would allow the Social Security Administration to remain funded through 2058.

Some retirees are already exempt from Social Security taxes

Many low-income retirees already pay no federal taxes on Social Security benefits. That’s because they apply only once a retiree’s “combined income” — which includes adjusted gross income, tax-exempt interest and a percentage of their Social Security benefits — crosses a certain threshold.

Individuals with combined income below $25,000, or married couples filing jointly with less than $32,000, typically owe nothing. As a result, lower earners, who often rely on Social Security as their primary or only source of income, are already shielded from benefit taxation. (Nine states still tax Social Security, but those taxes are separate from the federal ones we're talking about.)

Gallego's proposal highlights a broader policy debate over fairness and long-term solvency. While Trump's One Big, Beautiful Bill Act provides temporary relief for middle-income retirees, Gallego's legislation would permanently restructure the taxation on benefits and shift more of the funding responsibility to higher earners.

With Social Security facing projected shortfalls in the next decade, the outcome of this debate could have lasting implications for retirees and the program's future.

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