The April 15 income tax deadline approaches. If you are a Social Security recipient who has additional sources of income, you will pay federal income tax on a portion of your Social Security benefits. Of the 66 million Americans who collect benefits, about 40% have taxable benefits.
Taxation of Social Security began in 1983. It has long been a thorn in the side of higher-earning beneficiaries, who consider it tantamount to double taxation. Now, relief may be on the way. A bill called the You Earned It, You Keep It Act has been introduced in Congress. Before we talk about the changes that would occur if the bill becomes law, let’s take a brief look at the existing tax structure.
Taxation Of Social Security Benefits
Your income determines whether you owe income tax on your Social Security income. This is calculated by adding your Social Security benefits to other taxable income, be it job wages, retirement pension, interest, dividends, etc. If the combined income exceeds a certain level, you’re on the hook for taxes. Here is the current breakdown:
|Combined Taxable Income
|% of Soc Sec Benefits That Are Taxable
|$25,000 – $34,000
|Up to 50%
|Up to 85%
|$32,000 – $44,000
|Up to 50%
|Up to 85%
Neither your current age or the age you began collecting benefits are relevant in these calculations; taxable status of your benefits is strictly based on your combined income. You can access the IRS worksheet for determining what portion of your benefits are taxable here.
Some states also levy their own tax on Social Security benefits. Thankfully, Florida is not one of them.
House Bill 7084: You Earned It, You Keep It
If the bill passes, Social Security income would no longer be subject to federal income tax. Introduced as House Bill 7084 in January by Rep. Angie Craig, (Dem- Minnesota), the bill would “amend the Internal Revenue Code of 1986 to repeal the inclusion in gross income of social security benefits, and for other purposes.” Says Rep. Craig says of the bill: “Social Security is a promise we have made to the American people… 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.”
To replace the lost revenue, individuals earning more than $250,000 a year would be required to pay into the system. Currently, workers pay FICA (Federal Insurance Contributions Act) on income only up to $168,600.
So far, the bill has received wide bi-partisan support. If passed, it is projected to reduce the federal deficit by $9 trillion over the next 75 years. The Social Security’s own chief actuary predicts passage of the bill would extend the solvency of the program for an additional 20 years, to 2054. Social Security Works, a non-profit organization dedicated to preserving Social Security, has endorsed the bill. Our current presidential contenders have yet to weigh in.
To keep our expectations in check, keep in mind that this is not the first iteration of the proposed legislation. Rep. Craig introduced the same legislation in 2022, but it never made it out of committee. If it does become law in this session, it would take effect in 2025.
You can track the progress of the bill here.