Sponsor
Michael Lawler
Representative · R-NY
Representative · R-NY
The bill reduces federal taxes for state and local government retirees by capping extra tax on pension income, but it does so at the cost of lower federal revenue that may require borrowing, spending cuts, or shifting tax burdens to other taxpayers.
State and local government retirees (seniors and public-sector retirees) will have their federal tax on pension income capped so they pay no more than $10,000 extra (or $20,000 for qualified joint filers) above tax on their non-pension income, lowering their federal tax burden.
Federal revenue will fall because less tax is collected from public pension recipients, which could reduce funding available for federal programs or increase borrowing over time.
Taxpayers who do not receive State or local government pensions (or whose non-pension income is higher) may face a comparatively larger share of the tax burden or reduced services if revenue shortfalls are addressed through higher taxes elsewhere or spending cuts.
Based on analysis of 2 sections of legislative text.
Caps federal income tax for State/local government pension recipients to the tax on non-pension income plus $10,000 ($20,000 for qualifying joint returns).
Creates a federal tax cap for individuals who receive state or local government pensions by limiting their total income tax to the tax on non-pension income plus an added fixed amount: $10,000 for single filers and $20,000 for joint returns where both spouses receive such pensions. The rule applies to tax years beginning after December 31, 2025. The change defines "non-pension tax amount" as the tax computed without counting state or local pension income and defines a "qualified joint return" as a joint return in which both spouses receive state or local government pensions.
Official title: To amend the Internal Revenue Code of 1986 to establish a cap on income taxes on certain pensions.
Introduced July 16, 2026 by Michael Lawler · Last progress July 16, 2026