On Jan 25, Angie Craig, a U.S. House member from Minnesota's 2nd district, reintroduced a bill titled the "You Earned It, You Keep It Act." This bill aims to end federal taxes on Social Security benefits from 2025 onward. If successful, retirees will keep more of their money.
The Double Win - Tax Cut and Extension of Program Life
Rep. Craig described the bill as a "win-win." She posits that the tax cut for seniors will pave the way to guarantee that Americans can continue to depend on the Social Security benefits they've rightfully earned. The positive impact of this act does not stop here. It is also aligned with extending the program's solvency by 20 years.
How Will the Bill be Funded?
A key question here is funding. How is funding planned for this bold bill that offers tax breaks and program longevity?
Currently, taxation kicks in for individuals earning over $25,000. This includes adjusted gross income, nontaxable interest, and half of Social Security benefits. For couples filing jointly, it starts above $32,000. They pay taxes on at least 50% of their Social Security benefits.
As per the Social Security Administration, about 40% of recipients pay these taxes. This tax is a crucial income stream for the OASI Trust Fund.
Is this the End of the Cap on Higher Earnings?
Interestingly, the Social Security benefits are also funded through a payroll tax that caps higher earnings. The current law states Americans are free from Social Security tax burdens for annual incomes exceeding $168,600. Could this be on the verge of changing?
"The You Earned It, You Keep It Act" proposes keeping the trust fund afloat by implementing a Social Security tax on all earnings above a sizable $250,000. This act aims for high earners to pay their share for retiree security.
Currently, the OASI Trust Fund is predicted to be exhausted by 2033. This could result in seniors receiving only around 77% of their benefits at that time. Alarming, indeed.
Impact on Retirees
The financial well-being of retirees forms a central component of this issue. Sally Hokkanen's story, a retired elementary school teacher, is fortifying their narrative. Like many retirees, Hokkanen relies on her Social Security payments and 401(k)s to get by.
Rep. Yadira Caraveo, a co-sponsor of the bill from D-Colo, expressed worries. She's concerned about the rising prices of essentials. Caraveo believes these costs endanger the financial stability seniors worked hard to secure. As she sees it, the government double taxing their hard-earned Social Security benefits is the last thing these seniors need.
The introduction of "The You Earned It, You Keep It Act" could well mark a significant shift in the landscape of Social Security benefits, changing the lives of many American retirees in the not-so-distant future. The upcoming discussions and fallouts in the legislative chambers are keenly anticipated.
RELATED TOPIC: From Retirement Accounts to HSAs: 15 Legal Strategies to Significantly Decrease Your Taxable Income
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