New Bill Proposes to Eliminate Federal Taxes on Social Security Benefits

For decades, retirees receiving Social Security benefits have faced the surprise of federal taxation on a portion of those payments. Now, a new bill the “You Earned It, You Keep It Act” seeks to permanently eliminate those taxes. The proposal could reshape retirement income planning while addressing concerns about the long-term solvency of Social Security.

What Happened

• The bill was introduced by Democratic lawmakers as a direct challenge to prior promises under the One Big Beautiful Bill Act.

• It would end federal taxation of Social Security benefits entirely, ensuring retirees keep the full amount of their earned benefits.

• To pay for the change, the bill proposes:

  • Lifting the payroll tax cap by applying payroll taxes to income above $250,000.

  • Maintaining the existing structure for earnings under the cap.

• Actuarial estimates suggest the measure could extend Social Security’s solvency through 2058.

  
  

Why It Matters

1. For Retirees: Eliminating taxation could significantly increase after-tax retirement income, particularly for middle-income households that rely heavily on Social Security.

2. For High Earners: The funding mechanism means those with wages above $250,000 will bear additional payroll tax burdens.

3. For Policymakers: The bill addresses two core issues retirement security and program sustainability while drawing political contrasts with existing reform proposals.

   
   

Implications for CPAs and Advisors

• Retirement Planning: Advisors should revisit income projections for clients, particularly those in the middle-income bracket, to model potential increases in disposable income.

• Tax Strategy: High-income clients may need to reconsider payroll tax exposure and explore strategies to manage added burdens.

• Client Communication: Clear guidance will be essential, as retirees may prematurely assume immediate relief before the bill becomes law.

  
  

Looking Ahead

The bill faces an uphill battle in Congress, but it signals a growing push to rethink the taxation of Social Security benefits. Whether or not this measure passes, advisors should prepare clients for potential structural changes that could redefine retirement income planning in the next decade.

Stay Ahead of Federal Tax Policy

Tax rules for retirement benefits are shifting fast, and proactive planning is key.

👉 Try Bizora today to keep track of federal tax reforms and help your clients plan for a secure future.