President Donald Trump‘s recently signed tax legislation, often referred to as the “big beautiful bill,” offers some relief for seniors who are currently taxed on their Social Security income. However, the bill stops short of eliminating those taxes entirely.
Now, a new effort from lawmakers could make that goal a reality.
On Thursday, Senator Ruben Gallego of Arizona introduced a new bill – the You Earn It, You Keep It Act – designed to completely eliminate federal taxes on Social Security benefits. Representative Angie Craig of Minnesota had already put forward a similar version of the bill in the House earlier this year.
In addition to removing the tax burden on Social Security payments, the legislation would also increase the payroll tax threshold, requiring Americans with annual earnings above $250,000 to contribute more to the program. Under current law, only income up to $176,100 is subject to Social Security taxes in 2025.
“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.
How Social Security is currently taxed
Whether or not Social Security recipients owe federal income tax depends on their overall income level.
A formula known as “combined income” is used to determine tax liability. This includes adjusted gross income, any tax-exempt interest, and half of a recipient’s Social Security benefits.
Those filing as individuals with combined income between $25,000 and $34,000 – or married couples with income between $32,000 and $44,000 – may see up to 50% of their benefits taxed.
For individuals and couples whose combined income exceeds those levels, up to 85% of their Social Security benefits may be subject to federal tax.
What’s in the “big beautiful” bill?
Although it doesn’t eliminate Social Security taxes, the “big beautiful” tax law introduces a temporary deduction meant to ease the tax burden on older Americans.
The law creates a new deduction of up to $6,000 for taxpayers aged 65 and older. This deduction is available whether a person itemizes or claims the standard deduction.
Eligibility for the full amount depends on income. Individual filers earning up to $75,000 and couples earning up to $150,000 in modified adjusted gross income can qualify. For those earning more, the deduction phases out gradually.
Tax experts say this measure is likely to benefit middle-income seniors the most, as many lower-income retirees already pay no federal tax on their benefits, and wealthier seniors may not qualify due to income limits.
The deduction will apply to tax years 2025 through 2028.
How the new bill could reshape Social Security taxation
In contrast to the limited and temporary nature of the senior deduction, Gallego’s You Earn It, You Keep It Act proposes a full and permanent end to federal taxes on Social Security benefits for all recipients.
Whether the bill will gain enough traction in Congress is yet to be seen. However, it has drawn support from advocacy groups such as The Senior Citizens League, which has been campaigning to end these taxes.
“Eliminating federal taxes on Social Security benefits is a commonsense step to ensure older Americans can keep more of what they’ve earned,” said Shannon Benton, executive director of the group.
The broader conversation about Social Security taxation comes at a critical time. The program’s trust fund is facing a potential shortfall, with estimates showing that benefits could be reduced within the next decade unless changes are made.
Some experts warn that the “big beautiful” bill could worsen the situation, as it reduces revenue without introducing measures to compensate for the loss. According to the Committee for a Responsible Federal Budget, this may accelerate the trust fund’s depletion.
By contrast, Gallego’s bill includes a funding plan. By expanding payroll taxes for high earners, the legislation could extend the life of the Social Security trust fund through 2058. That estimate aligns with an earlier analysis by the program’s chief actuary, based on the House version of the bill introduced in April.
Whether lawmakers choose to support temporary relief or push for a long-term overhaul, the pressure is growing to rethink how Social Security is taxed, and who should pay.