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Retirement Planning > Social Security

New Bill Repeals Social Security Tax, Raises Cap on Wealthy

By Melanie Waddell

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Representives Angie Craig, D-Minn., and Yadira Caraveo, D-Colo., have sponsored new legislation — the You Earned It, You Keep It Act — to repeal the federal taxation of Social Security benefits starting in 2025.

“For almost a century, America has upheld a fundamental promise — that if you work hard and play by the rules, you’ll be able to enjoy a secure retirement. However, historic inflation is eroding seniors’ budgets, jeopardizing the financial security they’ve worked their whole lives to achieve,” Caraveo said Monday in a statement.

Craig’s bill would allow the Social Security Administration to continue making all payments on time and in full through 2054 — 20 years longer than the current projection of 2034, according to an analysis from Social Security’s Office of the Chief Actuary.

The same analysis showed that the You Earned It, You Keep It Act would also reduce the federal debt by $8.9 trillion over 75 years, Craig explained in a statement.

(For more details, see 6 Things to Know About the New Bill Repealing Social Security Income Taxes.)

“This bill is a win-win — it’s a tax cut for seniors and a way to ensure more Americans can depend on the Social Security benefits they’ve earned. And on top of that, it’s fiscally responsible,” Craig said. “I’m leading the charge on this issue in Congress because we need to get money back in the pockets of middle-class Americans. The You Earned It, You Keep It Act will help us get it done.”

(We asked retirement planning and policy experts what they think of the bill. Here’s what they said.)

The legislation 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,” Caraveo added.

“The last thing they need is for the government to double tax their hard-earned Social Security benefits,” said Caraveo, referring to Colorado beneficiaries, who — along with those of Colorado, Connecticut, Kansas, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont and West Virginia — are taxed at the state level as of 2024, if they earn above certain preset income thresholds. 

“This move aims to directly benefit middle-class retirees without impacting their monthly benefits,” she added.

According to Nancy Altman, president of Social Security Works, a lobbying group focused on the intests of older Americans, the bill “strengthens Social Security by requiring the wealthiest to contribute to Social Security at the same rate as the rest of us. It also provides a tax break to millions of low-income seniors.”

A similar, but more targeted approach, is a provision Rep. John Larson, D-Conn., “included in his Social Security 2100 Act,” Altman added in an email to ThinkAdvisor.

“It exempts beneficiaries who are married and filing jointly from having to pay income tax on their Social Security, if they have annual incomes of $50,000 or less. (Individual filers with income of $35,000 or less are also exempt),” she explained, noting that Social Security Works supports the legislation.

Melanie Waddell

@Think_MelanieW

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