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Regulation and Compliance > Legislation

New Bill Would Repeal Federal Taxes on Social Security Benefits

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What You Need to Know

  • The You Earned It, You Keep It Act would eliminate federal taxation of Social Security benefits beginning in 2023.
  • The cuts would be paid for by extending the payroll tax to earnings above $250,000 a year.

Rep. Angie Craig, D-Minn., has introduced the You Earned It, You Keep It Act, legislation to repeal federal taxes on Social Security benefits.

The tax cut would be paid for by extending the payroll tax to wages over $250,000 a year. Wages over $147,000 are currently exempt from Social Security payroll tax.

“Social Security is a promise we have made to the American people — if you work hard and play by the rules, the dignity of a secure retirement will be within your reach,” Craig said in a statement.

“But taxing the very benefits American workers have earned after decades on the job diminishes our promise and threatens to undermine the financial security of retirees already struggling with rising prices,” she wrote. “Eliminating this tax will help Social Security benefits go further and ensure that American retirees have all the resources they need after a lifetime of hard work.”

Craig explained in the statement, released Aug. 16, that her bill “seeks to eliminate the unjust double tax on Social Security benefits that Americans have been forced to pay for nearly 40 years.”

The You Earned It, You Keep It Act would repeal all federal taxes on Social Security benefits beginning in 2023, Craig said.

The tax cuts, Craig said, “would have no effect on the monthly benefits that enrollees receive each month — and would be fully paid for by raising the cap for individuals earning more than $250,000 annually and asking them to continue paying into Social Security each year.”

Social Security 2100 Bill

Dan Adcock, director of government relations and policy at the National Committee to Preserve Social Security and Medicare, told ThinkAdvisor Monday in an email that while the group supports “providing tax relief to Social Security beneficiaries, making the wealthy pay their fair share of Social Security payroll taxes and extending trust fund solvency, our preferred legislative vehicle for accomplishing these goals is H.R. 5723, Social Security 2100: A Sacred Trust.”

The Social Security 2100 bill, introduced by House Ways and Means Social Security Subcommittee Chairman John Larson, D-Conn., “would reduce the taxation of Social Security benefits by increasing the income thresholds below which benefits are not taxed,” Adcock said.

Further, Adcock noted, “the benefit improvements in H.R. 5723 would enhance economic security for all beneficiaries. And the tax relief and benefit improvements in Social Security 2100: A Sacred Trust are paid for by applying the Social Security payroll tax to earnings income above $400,000 a year.”

Social Security Taxes

At the federal level, almost half of all households might pay taxes on a portion of their Social Security benefits, a recent Senior Citizens League survey found. And beyond that, 12 U.S. states tax Social Security at various income levels.

According to the Social Security Administration, some people who get Social Security must pay federal income taxes on their benefits. However, no one pays taxes on more than 85% of their Social Security benefits.

“You must pay taxes on your benefits if you file a federal tax return as an ‘individual’ and your ‘combined income’ exceeds $25,000. If you file a joint return, you must pay taxes if you and your spouse have ‘combined income’ of more than $32,000,” according to SSA.

“If you are married and file a separate return, you probably will have to pay taxes on your benefits,” SSA adds.

Nancy Altman, president of Social Security Works, said in another email that the group “is delighted” to endorse the You Earned It, You Keep It Act as it “strengthens Social Security by requiring the wealthiest to contribute to Social Security at the same rate as the rest of us, while also providing a tax break to millions of low-income seniors.”

Adcock said his group has not taken a position on Craig’s bill.