The TCJA, enacted in 2017, expires in 2025, potentially reverting many tax rules to pre-2017 standards. Learn how this may impact taxpayers and how to prepare.
What is the TCJA?
The TCJA, signed into law in December 2017, was a comprehensive tax reform package aimed at stimulating economic growth by lowering tax rates, increasing deductions, and altering the tax brackets for individuals and corporations. It also included changes like increasing the standard deduction, limiting state and local tax (SALT) deductions, and providing new benefits for pass-through businesses.
When Will the TCJA Expire?
Most individual tax provisions under the TCJA are set to expire on December 31, 2025. If no new legislation is passed, tax rules will revert to the pre-2017 standards, which means individual taxpayers could see increased rates and decreased deductions starting in 2026.
How the TCJA Expiration Will Affect Taxpayers
- Higher Tax Rates for Individuals
The TCJA reduced tax rates across several income brackets. When the TCJA expires, these brackets will revert to pre-2017 rates, leading to potentially higher taxes for many individuals. - Changes to Standard and Itemized Deductions
The TCJA nearly doubled the standard deduction, encouraging more taxpayers to use it over itemizing. Once the TCJA expires, the standard deduction will decrease, and limitations on itemized deductions will likely return, impacting high earners. - State and Local Tax (SALT) Deduction Cap
The TCJA introduced a $10,000 cap on SALT deductions, significantly affecting taxpayers in high-tax states. If the TCJA expires without a replacement, the previous rules on SALT deductions will be restored, potentially benefiting these taxpayers. - Child Tax Credit
The TCJA temporarily increased the child tax credit to $2,000 per child and expanded eligibility. If the act expires, the credit could decrease to its pre-2017 amount of $1,000, affecting many families with dependents. - Pass-Through Business Deduction (Section 199A)
A major benefit for small businesses and certain pass-through entities, the 20% deduction for qualified business income (QBI), will also sunset with the TCJA. Its expiration would significantly affect small business tax planning. - Estate and Gift Tax Exemptions
The TCJA increased the estate and gift tax exemption to $11.7 million for individuals. When it expires, the exemption will likely revert to pre-2017 levels, around $5 million, which could impact estate planning strategies.
Current Tax Brackets vs. Potential 2026 Brackets
2023 Tax Brackets (Under TCJA)
| Tax Rate | Single | Married Filing Jointly |
|---|---|---|
| 10% | Up to $11,000 | Up to $22,000 |
| 12% | $11,001 to $44,725 | $22,001 to $89,450 |
| 22% | $44,726 to $95,375 | $89,451 to $190,750 |
| 24% | $95,376 to $182,100 | $190,751 to $364,200 |
| 32% | $182,101 to $231,250 | $364,201 to $462,500 |
| 35% | $231,251 to $578,125 | $462,501 to $693,750 |
| 37% | Over $578,125 | Over $693,750 |
Potential 2026 Tax Brackets (Reverting to Pre-TCJA)
| Tax Rate | Single | Married Filing Jointly |
|---|---|---|
| 10% | Up to $9,525 | Up to $19,050 |
| 15% | $9,526 to $38,700 | $19,051 to $77,400 |
| 25% | $38,701 to $93,700 | $77,401 to $156,150 |
| 28% | $93,701 to $195,450 | $156,151 to $237,950 |
| 33% | $195,451 to $424,950 | $237,951 to $424,950 |
| 35% | $424,951 to $426,700 | $424,951 to $480,050 |
| 39.6% | Over $426,700 | Over $480,050 |
How to Prepare for the TCJA’s Expiration
- Review Income Tax Brackets and Adjustments
High earners should consider timing income and deductions around the expiration date to take advantage of the current lower tax rates. - Maximize the Current Standard Deduction
If you regularly itemize deductions, consider strategies like bunching charitable contributions into one tax year to optimize deductions while the current high standard deduction is available. - Plan for Changes to the Child Tax Credit
Families who rely on the child tax credit should budget for a potential decrease in the credit amount and consider tax-advantaged accounts to save for their children’s needs. - Adjust Estate Plans
Individuals with significant estates should review their estate plans and gifting strategies, as a lower exemption may subject a greater portion of their wealth to estate taxes. - Small Businesses Should Plan for QBI Deduction Changes
Pass-through entities may need to adjust their tax strategy to mitigate the impact of losing the 20% deduction for qualified business income.
Conclusion: What’s Next for Taxpayers?
The TCJA’s expiration could lead to significant tax increases for individuals and businesses. By understanding the potential changes, taxpayers can take proactive steps to prepare and optimize their tax strategies. Working with a tax professional, like those at MCMG Tax, can help you navigate these changes and ensure you’re maximizing available benefits under current laws.
Planning ahead is essential, and 2025 presents an ideal time to assess your financial situation and take advantage of TCJA provisions while they last. Whether you’re an individual, a family, or a business owner, understanding these potential changes will allow you to make informed decisions for a smoother tax transition in 2026.
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