Proposed Federal Bill Could Significantly Reduce Taxes For Retirees

Retirement is no easy feat. In fact, there is quite the gap between the fantasy of getting to retire and the hard reality of financially surviving non-working life. For some, retirement may be an endless swing of tennis rackets in overpriced retirement towns. But for many others, retirement is a stressful balancing act of living on a meager budget with Social Security retirement benefits that are also meant to cover mounting senior healthcare bills. However, a new proposed federal bill hopes to make the cost of retiree living slightly easier by reducing the tax burden on Social Security benefits.

Brought by Arizona Democratic Senator Ruben Vallego in early September 2025, the You Earn It, You Keep It Act would end federal taxation of Social Security benefits. "Like a lot of Americans, I've been paying into Social Security since my first job at fourteen. But despite decades of paying into the system, seniors are still forced to pay taxes on their hard-earned benefits – all while the ultra-wealthy barely pay into the system at all," Vallego said in a statement on his website.

It's also important to realize that Vallego's bill (and its accompanying legislation by Minnesota Congresswoman Angie Craig) does not further increase already rapidly-draining Social Security trust funds — and therefore won't negatively impact the future of Social Security. Instead, the You Earn It, You Keep It Act aims to cut federal taxation on Social Security benefits by expanding the Social Security payroll tax to include high-income earners.

The "ultra-wealthy" that Vallego wants to pay into Social Security, via payroll taxes, are those who make $250,000 a year and above. Currently, the highest income cap required to pay Social Security payroll taxes is $176,100. By raising the maximum income cap for this tax, Vallego is proposing a way for this federal tax cut to be permanently funded while also evening out the payroll-tax paying playing field.

Under the bill, high earners, and the rest of those who rely on Social Security retirement benefits, will not only be able to entirely avoid federal taxation on their benefits, but also enjoy those benefits for much longer. Vallego's bill would function as an extension of all Social Security benefit payments through 2058, rather than the all-too-soon currently projected insolvency date of 2034. This means Vallego's bill hopes to lengthen the full benefits period for retirees by 24 years. The bill is currently supported by nonpartisan advocacy group, The Senior Citizens League, as well as Social Security Works. Ultimately, the You Earn It, You Keep It Act will need bipartisan support to move further, and to potentially ease the current up-to-85% federal tax burden on Social Security retirement benefits.