The Public Service Retirement Tax Relief Act of 2026 would cap the federal income taxes owed by people receiving pensions from state and local government employers. Under this bill, retirees could pay no more than $10,000 in federal income tax on their pension income, or $20,000 if they file a joint return with a spouse who also receives a government pension. The tax cap would apply only to the portion of taxes owed on pension income, not to taxes owed on other income sources like investments or part-time work. This change would primarily benefit public sector retirees, including former teachers, police officers, firefighters, and other government employees. The bill would take effect for tax years beginning after December 31, 2025.
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