Social Security benefits: Good news for retirees as new bill promises to eliminate taxes in 2026

Retirees across the United States may soon breathe a little easier under a proposed federal law that aims to eliminate federal income taxes on Social Security benefits starting in 2026.

The legislation would represent a major shift in tax policy, no longer will retirees worry about part of their Social Security being taxed at certain income levels. The change is potentially transformative for millions, especially those living on fixed incomes.

The bill, known as the You Earned It, You Keep It Act, has been introduced by Rep. Josh Riley (D-NY) and has gathered support from others including fellow lawmakers and advocacy groups.

As stated in the official press release, the proposal would “eliminate federal taxes on Social Security benefits starting in 2026.” The idea is to allow retirees to retain more of what they’ve already paid into the system without hitting tax burdens in retirement.

“Seniors paid into Social Security their entire lives. It doesn’t make any sense to tax them on the benefits they earned,” Riley said. “This common-sense bill will deliver a tax cut to seniors and strengthen Social Security for future generations.”

To offset the lost revenue from dropping these taxes, the proposal seeks to raise the payroll tax wage base. Currently, only income up to a cap (about $176,100 in 2025) is subject to Social Security payroll tax; the new bill would extend the tax to annual wages above $250,000.

Middle-income retirees, who tend to rely heavily on Social Security and have historically seen portions of their benefits taxed, stand to benefit most from the repeal. Meanwhile, higher-income workers would contribute more into the system under the updated payroll tax scheme.

What retirees should know about qualifying and tax impact

Under current law, Social Security benefits become taxable depending on “combined income,” a formula that includes a person’s adjusted gross income, certain nontaxable interest, and half of their Social Security benefits.

Up to 85% of benefits may be taxed if income exceeds certain thresholds. The new law would sweep away that structure for federal taxes, beneficiaries would no longer have to calculate combined income to see if part of their benefit is taxable.

Nearly 90% of Social Security recipients would see relief under the proposal.

It’s important to note that the bill does not affect state taxes, which may still apply in some states.

Also, while the proposal promises full repeal of taxes on benefits at the federal level, there is ongoing debate about how the changes would interface with existing taxes on other retirement income sources, and how large the revenue shortfall may be.

Advocates argue this proposal would offer noticeable relief for retirees next year, improving economic stability in retirement for those already stretching budgets.

At the same time, opponents have raised concerns about the fiscal implications of such a move, including how Social Security‘s long-term solvency might be affected and whether other income tax burdens might shift.

For retirees, though, the message is clear: if the law passes, 2026 could mark the year they stop paying federal income tax on Social Security benefits, keeping more of what they’ve earned.