President Donald Trump’s “big beautiful bill” offers relief to certain Social Security recipients who pay taxes on their benefits.
However, it does not completely eliminate these levies.
Senator Ruben Gallego, D-Arizona, introduced a bill on Thursday called the You Earn It, You Keep It Act, which would eliminate taxes on Social Security benefits. Rep. Angie Craig, a Democrat from Minnesota, introduced a House version of the bill in April.
Gallego’s legislation would permanently eliminate federal taxes on Social Security benefits.
It would also increase the Social Security payroll tax to apply to annual earnings exceeding $250,000. Currently, the maximum earnings subject to Social Security payroll taxes are $176,100 in 2025. As a result, high-income earners may only contribute to the program during certain months of the year.
“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,” said Gallego in a prepared statement.
How Social Security benefits are taxed
Social Security recipients may be required to pay federal income taxes on their benefits, depending on their income.
The amount they may owe is calculated using a formula known as combined income, which is the sum of adjusted gross income, tax-exempt interest income, and half of Social Security benefits.
Individual taxpayers with a combined income of $25,000 to $34,000, or married couples filing jointly with an income of $32,000 to $44,000, may be taxed on up to 50% of their benefits.
Individuals with more than $34,000 in combined income or couples with more than $44,000 may be taxed on up to 85% of their benefits.
How the ‘big beautiful’ tax law helps seniors
Republicans’ new “big beautiful” law includes a new senior deduction designed to help offset the impact of federal taxes on Social Security benefits.
Adults aged 65 and up may be eligible for an additional deduction of up to $6,000.
Beneficiaries’ income will determine whether they benefit from the change.
Individual taxpayers with a modified adjusted gross income of up to $75,000 or married couples earning up to $150,000 will be eligible for the full deduction. Taxpayers with incomes above those thresholds will see the deduction gradually phased out.
The temporary deduction, which will be in effect from 2025 to 2028, will be available to all eligible taxpayers, whether they take the standard deduction or itemize their returns.
According to tax experts, middle-income taxpayers will benefit the most from the policy because low-income earners may already be exempt from federal taxes on benefits, while higher-income earners will be above the phaseout threshold.
Unlike the recently enacted temporary senior deduction, Gallego’s You Earn It, You Keep It proposal would eliminate federal taxes on all Social Security benefits.
To be sure, it remains to be seen whether it will garner sufficient support to become law.
The proposal has the support of The Senior Citizens League, a nonpartisan senior advocacy group that is urging Congress to stop taxing Social Security benefits.
Eliminating federal taxes on Social Security benefits is a “commonsense step to ensure older Americans can keep more of what they’ve earned,” according to Senior Citizens League Executive Director Shannon Benton.
Efforts to change the federal taxation of Social Security benefits come as the program faces a trust fund deficit. Benefits may be reduced within the next decade unless Congress acts sooner, according to Social Security trustee projections.
According to the Committee for a Responsible Federal Budget, the “big beautiful” law would accelerate depletion dates because it included no offsets for the reduced revenue from federal taxes on benefits.
In contrast, the You Earned It, You Keep It proposal would extend the ability of the Social Security trust funds to pay benefits in full and on time for 24 years, or until 2058, according to Gallego’s office. That corresponds to an analysis of Craig’s House proposal by Social Security’s chief actuary in April.
