A new legislative proposal could bring significant tax relief to millions of retirees by eliminating federal taxes on Social Security benefits. Senator Ruben Gallego’s You Earn It, You Keep It Act seeks to permanently remove the tax burden that currently affects up to 85% of Social Security income, a step that advocates say would make a meaningful difference to seniors across the country.
Currently, Social Security beneficiaries may find their benefits taxed based on their total income. This proposal, if passed, could permanently shield Social Security income from taxation, offering long-awaited relief to the elderly. Senator Gallego’s bill is seen as a direct response to the existing tax system, which critics argue unfairly penalises retirees.
The Current System and its Criticism
Under the current tax system, Social Security benefits are subject to federal taxation for individuals whose income exceeds certain thresholds. As it stands, up to 85% of Social Security benefits can be taxed based on combined income, which includes wages, interest, and other sources of income. For many retirees, this can result in a substantial portion of their benefits being taxed, despite having paid into the system throughout their careers.
Critics, including Senator Gallego, argue that this taxation system unfairly impacts seniors who have already contributed to the Social Security fund over decades of work. In a press release, Gallego emphasised that seniors “earned their Social Security,” pointing out that while ordinary Americans pay into the system for years, the ultra-wealthy often contribute less relative to their earnings. The proposed You Earn It, You Keep It Act would therefore remove the federal tax on Social Security benefits, ensuring seniors can retain more of their hard-earned income.
Paying for the Tax Break
To offset the loss of revenue from eliminating these taxes, Gallego’s proposal includes an expansion of payroll taxes on high earners. Under the bill, individuals with annual earnings above $250,000 would contribute more to the Social Security system. This would ensure that the burden of funding Social Security remains balanced, with wealthier individuals contributing a larger share of the tax revenue.
Currently, the payroll tax applies to earnings up to $176,100 for 2025, and Gallego’s plan would extend this tax to those with higher incomes. This provision aims to make the Social Security system more equitable while allowing retirees to keep more of their benefits, a measure that many argue is long overdue.
The bill follows a similar proposal introduced by Representative Angie Craig in the House earlier this year. While both pieces of legislation share the same goal of ending Social Security taxation, Gallego’s version in the Senate could face a different set of challenges in the coming months as it works its way through Congress.
The move is part of a broader conversation about the fairness of tax policies that affect seniors, especially those who rely heavily on Social Security for their retirement income. If the bill gains traction, it could represent a substantial shift in how the federal government taxes retirement benefits, potentially setting the stage for similar reforms in the future.
