Cecily Zamora
With the constant changes in tax laws, it can be challenging to understand how these changes will impact your finances. Tax calculators are a great tool to help you estimate the effects of tax law changes on your refund. These calculators allow you to compare different scenarios and understand the potential impact on your tax liability. While these tools are for educational use and do not cover all tax scenarios, they can provide valuable insights into how tax law changes might affect you. Additionally, checking your withholding can help protect you from unexpected tax bills and allow you to adjust your tax withholdings accordingly. Understanding these changes and their implications is essential for effective financial planning.
| Characteristics | Values |
|---|---|
| Purpose | To estimate how the Tax Cuts and Jobs Act (TCJA) will affect taxpayers in different scenarios in 2026 |
| Users | Allows users to compare how different sample taxpayers fare or to input a custom taxpayer |
| Scenarios | First, the calculator shows a taxpayer’s liability if Congress extends the TCJA. Second, it shows a taxpayer’s liability if Congress does nothing and allows the TCJA to expire |
| Result | The difference between the two scenarios illustrates the tax increase or decrease a taxpayer would see if the TCJA expires |
| Use case | The calculator includes most aspects of federal individual income tax |
| Intended use | The calculator is intended as an illustrative tool for the estimation of the TCJA’s impact on example taxpayers. It should not be used for tax preparation purposes |
| Data input | The calculator does not ask for or save personal information such as name, social security number, address, or bank account numbers |
| Other features | The calculator also includes other features of the H.R.1 Tax Cuts and Jobs Act, such as doubling the standard deduction and removing personal exemptions |
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What You'll Learn
Sales tax
When filing federal income tax, taxpayers must choose between taking the standard deduction or itemizing deductions. Most Americans opt for the standard deduction. Sales tax can be deducted from federal income tax, but only if deductions are itemized. Itemizing deductions can be tedious and involve meticulous record-keeping, as the IRS requires the submission of sales tax records, such as purchase receipts. Taxpayers who plan to itemize should keep detailed records to determine the amount of sales tax paid.
The IRS provides a sales tax deduction calculator to estimate sales tax payments based on average consumption patterns, relevant tax rates, income, and family size. This calculator is useful for those who do not wish to maintain receipts for every purchase. Additionally, the Minnesota Department of Revenue offers a sales tax rate calculator to determine the general state and local sales tax rate for any location within the state.
Businesses with a physical presence in a state, such as offices, warehouses, or employees, are typically required to collect and file sales tax in that state. However, even without a physical presence, a business may still have sales tax liability in a state and be responsible for collecting and remitting taxes. Tools like TaxJar can assist businesses in automating their sales tax calculations and ensuring compliance with the relevant laws and rates.
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Tax Cuts and Jobs Act (TCJA)
The Tax Cuts and Jobs Act (TCJA) of 2017 was a federal law that amended the Internal Revenue Code of 1986. It was also known as the Trump Tax Cuts. The TCJA was a pro-growth tax reform that simplified the tax code, significantly lowering marginal tax rates and the cost of capital. The law reduced tax rates for both corporations and individuals.
The TCJA lowered the corporate income tax rate from 35% to 21%, which was lower than the OECD average of 25%. This measure also allowed full and immediate expensing of short-lived capital investments for five years and increased the Section 179 expensing cap from $500,000 to $1 million. The act eliminated or curtailed a variety of business taxes and expenditures, including the deductibility of net interest and net operating loss carrybacks and carryforwards.
For individuals, the TCJA increased the standard deduction to $12,400 for single filers and $24,800 for married filers (tax year 2020), compared with $6,500 (single) and $9,550 (married) under prior law. The bill also eliminated the personal exemption and limited certain itemized deductions like the state and local tax (SALT) deduction, mortgage interest deduction (MID), and charitable contribution deduction. The TCJA also doubled the child tax credit.
The TCJA was expected to lower taxes across the income spectrum, with the top 20% of Americans by income projected to receive roughly 65% of the tax savings. However, the Tax Policy Center estimated that 72% of taxpayers would be adversely impacted in 2019 and beyond if the tax cuts were paid for by spending cuts. The act is set to expire soon, which could result in tax hikes for most Americans unless Congress takes action.
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Deductions
When it comes to deductions, taxpayers in the US need to choose between taking the standard deduction or itemizing their deductions. Most Americans opt for the standard deduction, which allows them to subtract a set amount from their income based on their filing status. This is generally a simpler option compared to itemizing.
Itemizing deductions involves meticulously recording and submitting various expenses, such as sales tax records and purchase receipts, to the IRS. While itemizing can be more tedious, it may be advantageous for taxpayers who have made significant purchases or have multiple deductible items. This allows them to deduct expenses one by one from their income, potentially resulting in greater tax savings.
The decision between standard and itemized deductions depends on an individual's specific circumstances. For example, the Tax Cuts and Jobs Act (TCJA) of 2017, which simplified income taxes and reduced rates across the income spectrum, is set to expire in 2026. As a result, taxpayers may face changes in deductions, such as the nearly doubled standard deduction and limited itemized deductions, that could impact their tax liability.
It's important to note that deductions can vary based on jurisdiction and the type of taxpayer (individual or organization). Some common deductible items include charitable contributions, other taxes, healthcare costs, capital losses, and business expenses. Additionally, there may be specific deductions for state and local taxes, tips, overtime income, car loan interest, and enhanced deductions for seniors or child tax credits.
To ensure they are making the right choice, taxpayers can utilize tax software or calculators to estimate their tax liability under different scenarios and compare the impact of choosing the standard deduction versus itemizing their deductions. These tools can help individuals navigate the complex world of tax deductions and make informed decisions to minimize their tax burden.
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Tax hikes
Americans are facing a tax hike in 2026 due to the impending expiry of the Tax Cuts and Jobs Act (TCJA) of 2017. The TCJA was a tax reform law that simplified individual income taxes and reduced tax rates across the income spectrum. It lowered marginal tax rates, widened tax brackets, doubled the child tax credit, and increased the standard deduction.
However, if Congress does not take action before the end of 2025, the TCJA will expire, resulting in higher taxes for most Americans. The Tax Foundation's tax calculator tool can help taxpayers estimate the impact of the TCJA's expiry on their tax liability in 2026. This tool allows users to compare their tax liability under two scenarios: if Congress extends the TCJA or if it is allowed to expire.
In addition to the potential tax hike due to the TCJA's expiry, there are other tax law changes that taxpayers should be aware of. For tax year 2025, the Internal Revenue Service (IRS) has announced annual inflation adjustments that will impact taxpayers when they file their returns in 2026. These adjustments include changes to standard deductions, marginal tax rates, earned income tax credits, and various other tax provisions.
Furthermore, the "One Big Beautiful Bill Act," passed in July 2025, has introduced several new tax laws. These include an increased standard deduction, lower tax brackets, and a higher lifetime estate tax exemption amount. The new tax laws also include adjustments to deductions and retirement contributions, such as a higher catch-up contribution limit for employees aged 60 to 63.
With the potential expiry of the TCJA and the introduction of new tax laws, taxpayers may want to consult a wealth advisor to adjust their tax planning strategies accordingly.
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Tax reform
The impact of tax reform can be wide-ranging. For instance, it can affect retirement plans, tax-exempt organizations, and governments. In the US, sales tax, which is imposed by most states, can impact taxpayers when filing federal income tax, as they need to choose between taking the standard deduction or itemizing deductions. Outside of the US, Value-Added Tax (VAT) is a common form of sales tax, imposed at different stages of the production of goods and services.
To help individuals and businesses understand the impact of tax reform, organizations like the Tax Foundation provide tax calculator tools. These tools allow users to estimate the potential effects of tax law changes on their tax liability. For example, the Tax Foundation's tax calculator can illustrate how the expiration or extension of the TCJA could affect taxpayers in 2026. Similarly, Intuit TurboTax offers a free tax reform calculator to help taxpayers navigate new tax law changes and maximize their refunds.
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Frequently asked questions
The TCJA, or the Tax Cuts and Jobs Act, was a tax reform law passed in 2017 that simplified individual income taxes and reduced tax rates across the income spectrum.
The TCJA is set to expire in 2026, which will result in higher taxes for most Americans. You can use online tax calculators to estimate how the expiration of the TCJA will affect your taxes.
A tax calculator is an online tool that helps individuals estimate their tax liability and understand how changes in tax laws will impact their taxes and refunds.
Tax calculators can help with understanding the impact of changes such as the One Big Beautiful Bill Act, President Trump's tax reform proposals, and new tax laws such as deductions for state and local income, sales, and property taxes.
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