Representatives Angie Craig (D-MN) and Yadira Caraveo (D-CO) sponsored new legislation last month that would repeal the federal taxation of Social Security benefits starting in 2025.
The number of Social Security recipients reporting that they paid federal income tax on their Social Security benefits for the first time is climbing, according to the latest survey by The Senior Citizens League (TSCL).
During the 2023 tax season, 23 percent of survey participants who received Social Security for three years or more said they paid tax for the first time.
According to TSCL, this trend will likely continue in the 2024 tax season due to an 8.7% COLA increase in 2023.
SEE ALSO: 2025 Federal Retiree COLA Watch
“We expect the higher Social Security income will not only cause more Social Security recipients to pay taxes on their benefits this tax season, but taxes are taking a bigger portion of Social Security checks in 2024,” says Mary Johnson, Social Security and Medicare policy analyst for TSCL.
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The growing number of those getting hit by the tax is due to fixed income thresholds, according to TSCL. Unlike federal income tax brackets, the income thresholds that subject Social Security benefits to taxation have never been adjusted for inflation since the tax became effective in 1984.
Over time, more older taxpayers become liable for the tax on Social Security benefits and the portion of taxable benefits can increase as retirement income grows.
If passed, the You Earned It, You Keep It Act (HR 7804) would repeal the federal taxation on Social Security benefits starting in 2025. The bill aims to directly benefit middle-class retirees without impacting their monthly benefits.
“For almost a century, America has upheld a fundamental promise — that if you work hard and play by the rules, you’ll be able to enjoy a secure retirement. However, historic inflation is eroding seniors’ budgets, jeopardizing the financial security they’ve worked their whole lives to achieve,” Rep. Caraveo said.
The bill would be paid for by raising the cap on the Social Security payroll tax, so higher-earning Americans continue paying into Social Security.
According to Rep. Craig, non-partisan analysis indicates the proposed legislation would allow the Social Security Administration to continue making all payments on time and in full through 2054 – 20 years longer than the current projection of 2034.
The same analysis showed that the You Earned It, You Keep It Act would also reduce the federal debt by $8.9 trillion over 75 years.
“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. And on top of that, it’s fiscally responsible,” said Craig.
The full text of the bill can be read here.