Tax Break Alert: Retirees May Enjoy Tax-Free Social Security Benefits Soon!

Tax Break Alert: Retirees May Enjoy Tax-Free Social Security Benefits Soon!

Lawmakers have introduced a new proposal aimed at eliminating federal taxes on Social Security retirement benefits starting as early as next year. The bill, known as the You Earned It, You Keep It Act, outlines a plan to phase out federal taxes on Social Security income beginning in 2025, with the changes reflected in tax returns filed in early 2026.

Minnesota Representative Angie Craig (D-Minn.) described the proposal as a “win-win” situation, stating that it would provide tax relief for seniors and ensure that more Americans can rely on the Social Security benefits they’ve earned.

Tax Break Alert: Retirees May Enjoy Tax-Free Social Security Benefits Soon!

While similar bills have been introduced in the past, the potential impact of this legislation cannot be overstated. Currently, 85% of Social Security benefits are subject to federal taxation, placing a burden on retirees, particularly those with additional taxable income from sources like retirement accounts.

According to Kiplinger, the Social Security tax wage base increased by 5.2% from 2023 to 2024. Last year, the wage base was $160,200, and it rose to $168,600 for 2024. If the proposed bill is successful, the wage limit would be further raised to over $250,000, allowing high earners to pay the 6.2% payroll tax on nearly $100,000 more of their wages.

Given the numerous bills under consideration this tax season, whether you’re an individual, a business using municipal accounting software to manage finances or a family, it’s crucial to stay informed about all news and developments.

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