No tax on Social Security benefits: Senator introduces bill

President Donald Trump’s “big beautiful bill” provides relief to certain Social Security beneficiaries who pay taxes on their benefits.

But it doesn’t eliminate those levies entirely.

Now, Sen. Ruben Gallego, D-Arizona, introduced a bill on Thursday — titled the You Earn It, You Keep it Act — to eliminate taxes on Social Security benefits. A House version of the bill was introduced by Rep. Angie Craig, D-Minnesota, in April.

Gallego’s bill would permanently eliminate federal taxes on Social Security benefits.

It would also expand the Social Security payroll tax to apply to annual earnings over $250,000. Currently, the maximum earnings subject to Social Security payroll taxes is $176,100 in 2025. Consequently, high earners may only pay into the program for part 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,” Gallego said in a statement.

Social Security recipients may owe federal income taxes on their benefits depending on their income.

How much they may owe is based on a formula known as combined income — the sum of adjusted gross income, tax-exempt interest income and half of Social Security benefits.

Up to 50% of benefits may be taxed for individual tax filers with between $25,000 and $34,000 in combined income, or married couples who file jointly with between $32,000 and $44,000.

Up to 85% of benefits may be taxable for individuals with more than $34,000 in combined income or couples with more than $44,000.

Republicans’ new “big beautiful” law includes a new senior deduction aimed at helping to defray the effects of federal taxes on Social Security benefits.

Adults aged 65 and over may be able to claim an additional deduction of up to $6,000.

Whether beneficiaries will benefit from the change will depend on their income.

The full deduction will be available to individual taxpayers with up to $75,000 in modified adjusted gross income or married couples with up to $150,000. The deduction will gradually phase out for taxpayers with incomes above those thresholds.

The temporary deduction — which will be in effect for tax years 2025 through 2028 — will be available to eligible taxpayers regardless of whether they take the standard deduction or itemize their returns.

Middle-income taxpayers stand to benefit the most from the policy, according to tax experts, since low earners may already be exempt from federal taxes on benefits and higher earners will be above the phaseout thresholds.

Unlike the temporary senior deduction recently signed into law, Gallego’s You Earn It, You Keep It proposal would eliminate federal taxes on Social Security benefits for all beneficiaries.

To be sure, it remains to be seen whether it may get enough support to become law.

The proposal does have the support of The Senior Citizens League, a nonpartisan senior advocacy group that is petitioning 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,” Senior Citizens League Executive Director Shannon Benton said in a statement.

Efforts to change the federal taxation of Social Security benefits come as the program is facing a trust fund shortfall. Benefits may be reduced within the next decade unless Congress enacts changes sooner, according to projections from Social Security’s trustees.

Because the “big beautiful” law did not include any offsets for the reduced revenue from federal taxes on benefits, it would accelerate the depletion dates, according to the Committee for a Responsible Federal Budget.

In contrast, 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, according to Gallego’s office. That matches an analysis of Craig’s House proposal by Social Security’s chief actuary in April.