Roughly 40% of Social Security recipients owe federal income tax on a portion of their monthly checks, a share that grows every year because the income thresholds triggering that tax have not budged since the Reagan administration. By some estimates, that translates to approximately 40 to 50 million retirees and other beneficiaries. A new Senate bill aims to bring that number to zero.

The legislation, titled the You Earned It, You Keep It Act, would repeal the section of the tax code that has required taxation of Social Security benefits since 1984. To replace the lost revenue, it would extend payroll taxes to wages above $250,000, setting up a direct clash over who should bear the cost of keeping the program financially stable.

What the bill would change for retirees

Sen. Ruben Gallego, D-Ariz., introduced the bill with a pointed message: it “actually eliminates taxes on Social Security benefits,” a deliberate contrast with what he described as false claims that prior legislation had already accomplished that goal. The bill is designated S. 2716 in the Senate, with an identical companion, H.R. 2909, introduced in the House.

At its core, the measure would repeal Internal Revenue Code Section 86. That provision, added by the Social Security Amendments of 1983 and expanded in 1993, currently subjects up to 85% of a retiree’s benefits to federal income tax once combined income crosses certain thresholds. Individual filers with combined income above $25,000 and joint filers above $32,000 can owe tax on a portion of their checks, according to a Congressional Research Service analysis. Those thresholds have never been adjusted for inflation, which is why they now sweep in tens of millions of retirees who would not have been affected when the law was written four decades ago.

Repealing Section 86 would remove that tax entirely, regardless of income level. To illustrate the potential impact: a married couple with $60,000 in combined income and a moderate Social Security benefit could see their annual federal tax bill drop by several hundred to a few thousand dollars, depending on how much of their benefit is currently taxable. (That range is an illustrative calculation based on current tax brackets and the Section 86 formula, not an official government estimate.) Higher-income retirees, who pay tax on the maximum 85% of benefits, would see an even larger reduction.

The distinction between this bill and the recently enacted One Big Beautiful Bill Act is central to the political debate. That earlier law created a temporary deduction for seniors rather than a permanent repeal of benefit taxation. Rep. Sharice Davids, D-Kan., has publicly argued the deduction falls short of a true elimination. The IRS has published implementation guidance for the earlier law’s provisions, but the relief it offers is time-limited and structurally different from wiping Section 86 off the books entirely. Gallego’s bill draws a hard line: a partial, expiring tax break is not the same as permanently ending the tax.

Many retirees view Social Security as a benefit they earned through decades of payroll contributions and resent paying federal income tax on money they feel has already been taxed once. The You Earned It, You Keep It Act leans into that frustration, promising a simple outcome: no federal income tax on Social Security benefits, period. It is worth noting the bill addresses only federal taxes. Several states also tax Social Security income under their own rules, and those would remain unaffected.

How the bill would replace lost revenue

Eliminating the tax on benefits would cost the Treasury a significant sum. According to the CBO’s 2023 baseline revenue projections, federal taxes on Social Security benefits were expected to generate roughly $48 billion in fiscal year 2024, a figure that has been growing as more retirees cross the unchanged income thresholds. Over a ten-year window, the cumulative cost of repeal would be substantially larger.

To offset the loss, the bill would extend Social Security payroll taxes to wages and self-employment income above $250,000. Under current law, the 12.4% payroll tax (split evenly between employer and employee) applies only to earnings up to $176,100 in 2025. Wages between that cap and $250,000 would remain exempt under the proposal, creating what policy analysts call a “donut hole” in the tax base. In practical terms, a worker earning $300,000 would pay the standard payroll tax on the first $176,100, nothing on the next $73,900, and the new tax only on the final $50,000 above the $250,000 line.

According to Social Security Administration data, roughly 6% of American workers earn above $176,100 in a given year. The subset earning above $250,000 is smaller still, meaning the new levy would fall on a relatively narrow slice of the workforce.

Gallego has described this structure as one that asks the highest-paid workers to contribute more while delivering relief to retirees across the income spectrum. In his press release announcing the bill, the senator asserted the trade-off would more than cover the revenue lost from ending benefit taxation and would strengthen Social Security’s long-term finances. Those claims, however, have not been verified by independent budget scorekeepers.

Why the fiscal math matters now

The bill arrives at a precarious moment for Social Security’s finances. The Social Security trustees’ most recent report projects that the combined Old-Age, Survivors, and Disability Insurance trust funds will be depleted by 2033, one year sooner than the prior estimate. Once reserves run out, incoming payroll tax revenue would cover only about 79% of scheduled benefits, triggering automatic, across-the-board cuts unless Congress acts.

Any legislation that eliminates one revenue stream while creating another needs careful modeling to ensure it does not accelerate that timeline. As of June 2026, no independent score from the Joint Committee on Taxation has been published for either S. 2716 or H.R. 2909, leaving the precise cost and the net effect on trust fund solvency unverified. The Social Security Administration has not issued a public statement on the bill’s projected impact.

Without those numbers, the central promise of the legislation remains an open question: Would the new payroll tax on high earners simply replace the revenue lost from repealing Section 86, or would it generate enough surplus to extend the trust funds’ life? Proposals to raise or eliminate the payroll tax cap have surfaced repeatedly over the past two decades, often with bipartisan polling support but without enough votes to pass. Bills specifically aimed at ending federal taxes on Social Security benefits have likewise been introduced in previous sessions of Congress without advancing to a floor vote. The fiscal pressure of a looming 2033 deadline could change that calculus.

What retirees should know before the 2026 midterms

Nothing changes for retirees filing their taxes today. Social Security benefits remain subject to federal income tax under the same rules that have applied for decades, and the temporary deduction created by the One Big Beautiful Bill Act is the only new relief currently in effect.

But the You Earned It, You Keep It Act has sharpened the debate heading into the 2026 midterm cycle, forcing lawmakers to answer a straightforward question: If eliminating the tax on Social Security benefits is popular enough to campaign on, who should pay for it? How Congress answers will shape not just retirees’ tax bills but the long-term solvency of the program 72 million Americans depend on.