'Win-win': Bill to eliminate taxes on Social Security benefits reintroduced - it would also extend the program's shelf life by 20 years. Here's what you need to know

[Leroy N. Soetoro]

https://finance.yahoo.com/news/win-win-bill-eliminate-taxes-115000255.html

A recently reintroduced bill in the U.S. House could scrap federal taxes
on Social Security benefits starting in 2025, putting more money back into
the pockets of retirees.

On Jan. 25, Rep. Angie Craig, D-Minn., reintroduced legislation, dubbed
the “You Earned It, You Keep It Act,” that would repeal the taxation of
Social Security benefits, while also extending the program's solvency by
20 years.

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“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,”
Craig said in a press release.

Here’s how the bill would work.

How it will be paid for
Folks with a combined income — which includes your adjusted gross income,
plus nontaxable interest, plus half of your Social Security benefits — of
$25,000 or more (and couples filing jointly with a combined income of
$32,000 or more) currently pay taxes on at least 50% of their benefits.

According to the Social Security Administration, about 40% of people who
receive Social Security benefits end up paying taxes on them each year.
This is a major source of revenue for the Social Security Old-Age and
Survivors Insurance Trust Fund.

However, Social Security benefits are also financed through a payroll tax
that comes with a cap on higher earnings. Under the current law, Americans
don’t get taxed for Social Security on annual earnings above $168,600.

The “You Earned It, You Keep It Act” would continue to fill the trust
fund’s coffers by applying a Social Security tax to all earnings above
$250,000.

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Inflation is 'eroding' benefits
The Social Security Old-Age and Survivors Insurance Trust Fund is
currently projected to run low by 2033, which means seniors are expected
to receive about 77% of their benefits at that time.

And to make matters worse, despite a 3.2% cost-of-living adjustment to
Social Security payments this year, many beneficiaries aren’t convinced
the monthly checks will be enough to account for the increased cost of
basic goods, which are up 3.4% compared to a year ago, according to the
latest Census Bureau numbers.

A retired elementary school teacher, Sally Hokkanen, told FOX 9
Minneapolis-St. Paul that she and her husband rely on Social Security
payments and their 401(k)s to make ends meet.

“Most of it goes to rent and transportation,” Hokkanen said, adding that
she’d love to use the extra money to travel if the tax on Social Security
benefits gets eliminated with the “You Earned It, You Keep It Act.”

"Historic inflation is eroding seniors' budgets, jeopardizing the
financial security they've worked their whole lives to achieve," Rep.
Yadira Caraveo, D-Colo., who co-sponsored the bill, said in a news
release. "The last thing they need is for the government to double tax
their hard-earned Social Security benefits."

The reintroduced bill was originally announced in August 2022.


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