Bill Aiming to End Taxes on Social Security Benefits Reintroduced, Promising a 20-Year Program Extension

A recently reintroduced bill in the U.S. House aims to eliminate federal taxes on Social Security benefits starting in 2025, potentially boosting retirees’ income.

The Tax-Free Proposal

Illustration. Image by Depositphotos.com

On Jan. 25, Rep. Angie Craig, D-Minn., brought back the ‘You Earned It, You Keep It Act,’ a proposal to stop taxing Social Security benefits and simultaneously extend the program’s solvency by 20 years.

Who Pays Taxes on Social Security?

As for the funding mechanism, individuals with a combined income (including adjusted gross income, nontaxable interest, plus half of Social Security benefits) of $25,000 or more and couples jointly earning $32,000 or more are currently taxed on at least half their benefits.

The Tax Burden Reality

The Social Security Administration notes that around 40% of Social Security recipients pay taxes on their benefits annually, a significant contribution to the Social Security Old-Age and Survivors Insurance Trust Fund.

Taxing High Earners

Social Security benefits are partly funded by a payroll tax with an upper earnings limit. As it stands, American earnings above $168,600 annually aren’t subject to Social Security tax.

Easing Retirees’ Burden

The purpose of the ‘You Earned It, You Keep It Act’ is to abolish federal taxes on retirees’ Social Security benefits, aiming to ease the financial strain caused by inflation.

Introduced to allow seniors to preserve more of their lifelong benefits, it also proposes raising the income cap for high earners to over $250,000, thus preserving Social Security’s financial health.

A Looming Threat

On another front, inflation is eroding the value of benefits. The Social Security Old-Age and Survivors Insurance Trust Fund might face a shortfall by 2033, potentially reducing seniors’ benefits to about 77% of the current value.

Retirees’ Dilemma

Illustration. Image credit: Shutterstock

Adding to the concern, despite this year’s 3.2% cost-of-living increase in Social Security payments, many recipients doubt these adjustments will cover the 3.4% rise in essential goods costs, as reported by the latest Census Bureau data.

A Teacher’s Retirement Story

Sally Hokkanen, a retired elementary school teacher, shared with FOX 9 Minneapolis-St. Paul how she and her husband depend on Social Security and their 401(k)s for financial stability.

Life After Tax Relief

“Most of it goes to rent and transportation,” Hokkanen explained, expressing her desire to travel more if the Social Security tax is lifted by the ‘You Earned It, You Keep It Act.’

Inflation’s Toll on Senior Budgets

Rep. Yadira Caraveo, D-Colo., a co-sponsor of the bill, highlighted in a press release that “historic inflation is eroding seniors’ budgets, jeopardizing the financial security they’ve worked their whole lives to achieve.”

Double Taxation

Caraveo added, “The last thing they need is for the government to double-tax their hard-earned Social Security benefits.”

Reviving the Debate

This bill, initially introduced in August 2022, has now been brought back to the table, reflecting ongoing efforts to adapt social security systems to modern economic realities.

Essentially, this act seeks to honor the promise of a financially stable retirement for Americans who have spent a lifetime working.