A new bill called the You Earned It, You Keep It Act, introduced by Senator Ruben Gallego and Representative Angie Craig, aims to permanently end federal income taxes on Social Security benefits starting in 2026. This means millions of retirees could see bigger Social Security checks with less tax burden.

To fund this tax relief and strengthen Social Security's solvency, the bill proposes raising the payroll tax wage cap from $176,100 in 2025 to $250,000, making high earners contribute more. This would offset the lost revenue from the tax cut and extend the program's trust fund solvency to around 2058. Currently, up to 85% of Social Security benefits are taxable for retirees with incomes above certain thresholds, but this bill would eliminate those federal taxes entirely.

ALSO READ: Social Security’s 2026 COLA could make history — here’s why it’s not enough

Middle-income retirees are expected to benefit the most from this change, while higher earners fund it through increased payroll taxes. This legislation is distinct from temporary senior deduction measures, as it seeks a full repeal of federal taxes on Social Security benefits rather than partial relief or income threshold adjustments.

To offset the resulting revenue loss, the bill proposes expanding the Social Security payroll tax to apply to annual wages above $250,000. In 2025, the payroll tax cap is set at $176,100, meaning income above this threshold is currently exempt from the 6.2% tax that funds Social Security.

What the bill proposes

The bill’s core goal is simple: Social Security benefits would no longer count as taxable income for federal income taxes. Currently, some retirees see a portion of their Social Security taxed depending on their total income. By removing this tax, most seniors would keep more of the money they’ve paid into the system throughout their working lives.

To balance the loss of revenue, the bill suggests raising the payroll tax cap. Right now, Social Security taxes apply only to the first $176,100 of income. Under the proposed changes, wages above $250,000 would also be taxed, ensuring higher earners contribute more to the system and helping maintain its long-term solvency.

Who stands to benefit

Almost 90% of Social Security recipients could see immediate relief. Middle- and lower-income retirees, who rely heavily on these benefits, would likely experience the most significant impact. The reduction in taxes could translate into larger monthly checks, easing financial pressure for seniors navigating healthcare costs, housing, and everyday expenses.

Implications for Social Security funding

While the tax cut would be a relief for retirees, experts are watching the long-term effects closely. Without changes to the payroll tax cap, the Social Security trust fund could face financial strain in the coming years. Expanding payroll taxes to higher earners is intended to offset the revenue loss and extend the fund’s solvency beyond current projections, potentially safeguarding benefits for future generations.

Next steps for the legislation

The You Earned It, You Keep It Act has been introduced in both the House and Senate and is currently under review. If approved, the law would take effect for the 2026 tax year. Retirees and those approaching retirement should monitor the bill’s progress closely, as it could affect financial planning, retirement income projections, and tax strategies in the near term.

What retirees should do now

Even before the bill passes, it’s wise for seniors to review current tax situations, explore retirement income strategies, and consider consulting financial advisors. Preparing now ensures they can maximize benefits and adjust plans according to upcoming changes in Social Security taxation.