A new bill introduced in Congress would eliminate federal income taxes on Social Security benefits for all retirees while increasing Social Security payroll taxes on higher-income earners. The proposal, introduced by Sen. Ruben Gallego of Arizona, aims to provide tax relief for seniors while extending the financial stability of the Social Security program through additional payroll tax revenue.
If enacted, the legislation would change how Social Security is funded and how retirement benefits are taxed, although it still faces the legislative process before becoming law.
Proposal
The legislation, known as the You Earned It, You Keep It Act (S.2716), would eliminate federal income taxes on Social Security benefits by repealing Section 86 of the Internal Revenue Code.
Under current law, some retirees pay federal income tax on up to 50% or 85% of their Social Security benefits, depending on their combined income. The proposed bill would remove those federal taxes entirely.
Funding
To offset the loss of tax revenue, the bill would apply the 12.4% Social Security payroll tax to wages above $250,000.
Currently, Social Security payroll taxes apply only up to the annual taxable wage base, which is set at $184,500 for 2026. Earnings above that amount are generally not subject to the Social Security payroll tax.
Under the proposal:
- Wages up to $184,500 would continue to be taxed under current rules.
- Earnings between $184,500 and $250,000 would remain exempt from Social Security payroll taxes.
- Wages above $250,000 would once again be subject to the 12.4% Social Security payroll tax, split between employees and employers.
This structure creates what policy experts often describe as a “donut hole” because income between the taxable wage cap and $250,000 would not be subject to Social Security payroll taxes.
Impact
According to Sen. Gallego’s office, the additional payroll tax revenue would help keep full Social Security benefits payable through 2058.
However, no independent actuarial analysis from the Social Security Administration or the Congressional Budget Office has yet been released specifically evaluating the proposal. As a result, the long-term financial projections cited by the bill’s supporters have not been independently verified.
Budget analysts have noted that the bill’s fixed $250,000 threshold could gradually lose value over time as wages increase unless Congress later adjusts the amount.
Current Law
Federal taxation of Social Security benefits was introduced through laws passed in 1983 and expanded in 1993.
Revenue collected from those taxes supports several federal trust funds, including:
| Trust Fund | Purpose |
|---|---|
| Social Security Trust Funds | Retirement and disability benefits |
| Medicare Hospital Insurance Fund | Medicare Part A funding |
| Railroad Retirement Accounts | Railroad retirement benefits |
Eliminating those taxes would reduce revenue flowing into these programs unless replaced through another funding source, which is the purpose of the proposed payroll tax changes.
Debate
Supporters argue the legislation would provide meaningful tax relief to retirees while asking higher-income workers to contribute more toward maintaining Social Security’s long-term finances.
Critics may question whether relying on payroll taxes from high earners is sufficient over the long term and whether eliminating taxes on Social Security benefits is the best use of additional revenue when the program continues to face future funding challenges.
The House of Representatives is also considering separate Social Security proposals, including measures that would increase payroll taxes on higher earners while directing additional revenue toward benefit increases instead of tax reductions.
Status
The You Earned It, You Keep It Act has been introduced in the Senate but has not yet been approved by either chamber of Congress.
Like all proposed legislation, it must pass both the Senate and House of Representatives before being signed into law by the president.
| Bill Overview | Details |
|---|---|
| Bill Name | You Earned It, You Keep It Act |
| Bill Number | S.2716 |
| Sponsor | Sen. Ruben Gallego (D-Ariz.) |
| Main Proposal | End federal taxes on Social Security benefits |
| Payroll Tax Change | Applies above $250,000 in wages |
| Current Social Security Wage Cap (2026) | $184,500 |
| Current Status | Introduced in the Senate |
The proposal highlights one of the ongoing debates surrounding Social Security reform: whether additional revenue should be used to reduce taxes on retirees or strengthen the program’s long-term finances. As lawmakers continue discussing possible changes, the bill represents one approach to balancing tax relief with efforts to maintain Social Security funding.
FAQs
What is the You Earned It, You Keep It Act?
It is a Senate bill to end federal taxes on Social Security benefits.
Who introduced the bill?
Sen. Ruben Gallego of Arizona introduced the legislation.
How would the bill be funded?
By applying payroll taxes to wages above $250,000.
Has the bill become law?
No. It has only been introduced in the Senate.
Would all retirees benefit?
The proposal would eliminate federal taxes on Social Security benefits for all retirees.
