Washington Wants to Make 2 Big Changes to Social Security. Here's What Retirees Should Know.

Key Points

• President Trump's tax and spending bill does not actually eliminate taxes on Social Security benefits, despite the White House asserting otherwise.

• Several Washington lawmakers have introduced legislation that, among other changes, would truly put at end to the taxation of Social Security benefits.

• The Social Security program is projected to run a $3 trillion deficit through 2034, so any changes that reduce funding are unlikely to pass Congress.

• The $23,760 Social Security bonus most retirees completely overlook ›

President Trump signed his tax and spending bill into law on July 4. The White House touted the legislation as the president keeping his campaign promise to eliminate taxes on Social Security. "No tax on Social Security is a reality in the One Big Beautiful Bill," stated a press release.

But the legislation did not actually end taxes on benefits. Instead, it created a new standard deduction that will offset taxes owed on benefits for many (but not all) Social Security recipients. Specifically, about 88% of seniors (aged 65 and older) will no longer pay taxes on Social Security, up from 64% before the legislation was signed into law.

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However, several members of Congress still want to make big changes to the Social Security program, and truly eliminating taxes on benefits is a common goal. Here's what retirees should know.

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The Protecting and Preserving Social Security Act

Sen. Ruben Gallego (D-Ariz.) earlier this month introduced the Protecting and Preserving Social Security Act. Meanwhile, Rep. Angie Craig (D-Minn.) introduced a companion bill in the House of Representatives. The legislation would make two major changes to the Social Security program, as detailed below:

1. Repeal income taxation of Social Security benefits effective in 2026

Social Security payments were first subject to federal income tax in 1984. The law has been modified over the years, but it currently stipulates that beneficiaries with combined income above certain thresholds will owe tax on up to 85% of Social Security benefits.

However, Congress has never adjusted the combined income limits to account for inflation, but Social Security payments have received regular cost-of-living adjustments. That means the taxation thresholds are the same, but benefits have risen substantially in the last 40 years. Consequently, far more beneficiaries owe taxes on benefits today.

The Old-Aged, Survivors, and Disability Insurance (OASDI) Trust Fund -- the account that pays Social Security benefits -- is likely to be depleted in 2034 due to strain created by the aging population. Taxes on benefits are a key funding source for Social Security, so eliminating that revenue stream would hasten trust fund depletion, bringing benefit cuts even closer.

The You Keep It, You Earned It Act attempts to bypass that problem by mandating transfers from the Treasury General Fund to the Social Security Trust Fund. But money in the Treasury General Fund comes from income taxes and debt issuance, so the government must either raise taxes or issue more debt to replenish the money.

2. Apply the Social Security payroll tax to earnings above $250,000

Social Security is primarily funded by a dedicated payroll tax. Employees and employers each pay 6.2% of wages up to the maximum taxable earnings limit, which is $176,100 in 2025. Income above the taxable limit is excluded, which means someone who makes $200,000 will contribute the same amount as someone who makes $2 million.

The You Earned It, You Keep It Act would apply Social Security's payroll tax to all income above $250,000 to "ensure high-earners pay their share." The additional revenue generated by that change would extend the projected depletion date for the Social Security OASDI Trust Fund to 2058, meaning scheduled benefits would be payable without cuts for an additional 24 years as compared to current law.

Some perspective for retired workers on Social Security

The You Earned It, You Keep It Act is not the only legislation that proposes eliminating the taxation of Social Security benefits. For instance, Sen. Mazie Hirono (D-Hawaii) introduced the Protecting and Preserving Social Security Act in August, and Rep. Jill Tokuda (D-Hawaii) introduced companion legislation in the House. Among other changes, that bill would end taxes on Social Security.

However, any legislation that reduces funding for Social Security is unlikely to win approval in Congress in the near term. With the program projected to run a $3 trillion deficit through 2034, it simply does not make sense to eliminate funding sources while simultaneously trying to resolve a massive funding deficit.

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