Major changes could be coming to Social Security if a new bill that was reintroduced in the House recently is passed.
Beginning next year, retirees could receive more money in their pockets from their Social Security benefits, as federal taxes on that money would go away.
The bill, called the “You Earned It, You Keep It Act,” was reintroduced in the House by Democratic Representative Angie Craig at the end of January. It proposes repealing federal taxes on Social Security benefits, while at the same time extending the solvency of the program another 20 years.
As she said in a press release about the program:
“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.”
Right now, people who have a combined income of at least $25,000 pay taxes on at least 50% of their Social Security benefits. For couples who file their taxes jointly, that amount goes up to $32,000.
Those income levels are based upon their adjusted gross income, plus all non-taxable interest, plus half of the benefits they receive from Social Security benefits.
Every year, nearly 40% of individuals who receive benefits from Social Security pay taxes on those benefits, according to the Social Security Administration. This money serves as a significant revenue source for the Social Security Old-Age and Survivors Insurance Trust Fund.
Benefits from Social Security also get financed through payroll taxes that have a cap on higher earnings. The current law states that Americans don’t have to pay Social Security taxes on any earnings above $168,600.
Under the new proposal, taxes for Social Security would be assessed on all earnings above $250,000. In other words, the bill would shift where the money is coming from that funds how benefits are paid.
Right now, projections are that the trust fund will run low on money by 2033. If that happens, then seniors would receive only approximately 77% of the total amount of Social Security benefits they’d be typically due.
Social Security payments are rising each year with high cost-of-living adjustments due to high inflation, many people who receive benefits say they can’t keep up with the increased cost of all goods.
For instance, the cost-of-living adjustment for Social Security benefits is set to be 3.2% this year, while the average cost of goods is up 3.4% year-over-year, according to numbers provided by the Census Bureau.
In a release, Democratic Representative Yadira Caraveo from Colorado, who is a co-sponsor of the bill, said:
“Historic inflation is eroding seniors’ budgets, jeopardizing the financial security they’ve worked their whole lives to achieve. The last thing they need is for the government to double tax their hard-earned Social Security benefits.”
This will was originally introduced in August of 2022 but was recently re-introduced this week.
