What this bill proposes to do

The No Tax on Social Security Act is a proposed federal law that would prevent the federal government from taxing Social Security benefits. Right now, depending on your income level, between 0 and 85 percent of your Social Security payments can be subject to federal income tax. This bill would eliminate that tax entirely, meaning all Social Security recipients would keep 100 percent of their monthly benefit without any federal tax withheld or owed.

The bill has been introduced in Congress multiple times but has not become law. It has bipartisan support from some lawmakers but faces opposition from others who worry about the cost to the federal budget. Understanding what would change if it passed — and what the current rules are — helps you plan your taxes now, regardless of whether the bill eventually becomes law.

Key Takeaways

  • Currently, up to 85 percent of your Social Security benefits can be taxed as federal income if your combined income exceeds certain thresholds, which vary by filing status.
  • The No Tax on Social Security Act would eliminate federal taxation of all Social Security benefits, meaning no tax owed on any portion of your monthly payment.
  • The bill has not passed into law; it remains a proposal that Congress has considered but not enacted.
  • If you are currently paying taxes on your benefits, you should continue to plan for those taxes until the law changes, because the current rules still apply.
  • State taxes on Social Security vary by state; this federal bill would not change state tax rules, which differ widely.

How Social Security is taxed right now

Social Security taxation is based on your combined income, which includes your adjusted gross income, nontaxable interest, and half of your Social Security benefits. The IRS uses two income thresholds that depend on your filing status. For single filers, if combined income is between $25,000 and $34,000, you may owe tax on up to 50 percent of benefits. If combined income exceeds $34,000, you may owe tax on up to 85 percent of benefits. For married couples filing jointly, the thresholds are $32,000 and $44,000.

These thresholds have not changed since 1984. Because they are fixed dollar amounts, not adjusted for inflation, more people fall into the taxable range each year. This means a growing share of Social Security recipients pay federal tax on their benefits even though the thresholds were set nearly 40 years ago.

If you owe tax on your benefits, you can either make quarterly estimated tax payments or ask the Social Security Administration to withhold a flat percentage from your monthly check. Many recipients choose withholding because it is simpler than calculating quarterly payments.

What would change if the bill passed

If the No Tax on Social Security Act became law, the income thresholds would disappear entirely. No matter how much other income you have, none of your Social Security benefits would be subject to federal income tax. A retiree with $100,000 in pension income and $20,000 in Social Security would owe no federal tax on the Social Security portion. A couple with significant investment income would similarly owe no federal tax on their combined benefits.

For people currently paying tax on their benefits, this would mean a direct increase in take-home income. Someone receiving $2,000 per month in benefits and currently paying 15 percent in federal tax would keep an extra $300 per month. The exact savings depend on your tax bracket and how much of your benefits are currently taxed.

The bill would not change how Medicare premiums are calculated. Medicare uses a different income threshold called modified adjusted gross income (MAGI), and higher-income beneficiaries pay higher premiums for Part B and Part D coverage. The No Tax on Social Security Act does not address Medicare premiums, so those rules would remain the same.

State taxes on Social Security remain separate

Thirteen states currently tax Social Security benefits to some degree: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. The rules vary significantly by state. Some states tax benefits the same way the federal government does, using income thresholds. Others tax benefits only for higher-income retirees or only for those who are still working.

The No Tax on Social Security Act is a federal law and would not change state tax rules. If you live in one of these 13 states, you would still owe state tax on your benefits even if the federal bill passed. You would need to check your state's specific rules or contact your state tax authority to understand your state tax obligation.

Why the bill has not passed

The No Tax on Social Security Act has been introduced in Congress several times, most recently in 2023, but has not been voted into law. Supporters argue that the current tax thresholds are outdated and that Social Security recipients should not face federal tax on benefits they have already paid into through payroll taxes during their working years.

Opponents raise concerns about the cost to the federal government. The Social Security Administration and the Congressional Budget Office have estimated that eliminating taxation of benefits would reduce federal revenue by billions of dollars annually. Some lawmakers argue that revenue from taxing higher-income beneficiaries should be preserved to help fund Social Security's long-term solvency.

The bill remains a proposal. Until it passes both chambers of Congress and is signed by the President, the current tax rules on Social Security benefits remain in effect.

How to handle Social Security taxes while the bill is pending

You should plan your taxes based on current law, not on proposed legislation. If you are receiving Social Security and have other income that puts you above the income thresholds, you will owe federal tax on a portion of your benefits. You can reduce the amount withheld from your monthly check by filing a new Form SSA-521 with the Social Security Administration, or you can make quarterly estimated tax payments to the IRS.

Many tax software programs and tax preparers can calculate how much of your benefits are taxable based on your specific income situation. If you are unsure whether you owe tax on your benefits, the IRS publication 915 walks through the calculation step by step. You can also contact the Social Security Administration at 1-800-772-1213 to discuss withholding options.

Frequently Asked Questions

If the bill passes, when would it take effect?

The bill does not specify an effective date. If it passed, Congress would decide whether it applied to benefits received starting in a specific year or immediately. Typically, tax law changes take effect on January 1 of the following year, but that is not may provide. You would need to watch for official announcements from the IRS and Social Security Administration once the bill passed.

Would the bill affect people who are still working and receiving Social Security early?

The bill addresses only federal taxation of benefits, not the earnings test that reduces benefits for people under full retirement age who work. If you are receiving early benefits and working, your benefits are still reduced if you earn above a certain amount. The No Tax on Social Security Act would not change that rule.

Does this bill have anything to do with the payroll tax I paid while working?

No. The bill does not change how payroll taxes work or refund taxes you paid during your working years. It only addresses whether your monthly Social Security check is subject to federal income tax after you start receiving benefits. Payroll taxes and income taxes on benefits are separate systems.

What if I live in a state that taxes Social Security?

This federal bill would not change state tax rules. You would still owe state tax on your benefits according to your state's rules, even if the federal bill passed. Contact your state tax authority or a tax preparer familiar with your state's rules to understand your state tax obligation.