Cecily Zamora
The current tax law, the Tax Cuts and Jobs Act (TCJA), is set to expire at the end of 2025, with dozens of major individual and business tax policies affected. The TCJA, passed in 2017, overhauled the tax landscape for both individuals and corporations, reducing tax rates for most and shifting millions of Americans to the standard deduction. With the expiration of the TCJA, there will be substantial changes to individual income tax, with potential tax increases for over 62% of tax filers. The future of the TCJA's provisions is uncertain, and the outcome of the 2024 U.S. presidential election will play a significant role in determining whether they are renewed, reformed, or allowed to expire.
| Characteristics | Values |
|---|---|
| Name of the current tax law | Tax Cuts and Jobs Act (TCJA) |
| Year of passage | 2017 |
| Tax law changes | Overhauled the tax landscape for individuals and corporations |
| Changes for individuals | Shifted millions of Americans to the standard deduction and reduced individual tax rates |
| Changes for corporations | Reduced corporate tax rates |
| Expiry of the current tax law | End of 2025 |
| Impact of expiry | Nearly every American will be impacted by the sunsetting provisions |
| Congress action | Congress may extend the TCJA or make some changes to it |
| Impact on tax filers | More than 62% of tax filers may experience tax increases in 2026 |
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What You'll Learn
The impact on individuals
The Tax Cuts and Jobs Act (TCJA) was passed in 2017 and included significant changes to the tax code. The Act shifted millions of Americans to the standard deduction and reduced both individual and corporate tax rates. The TCJA also doubled the estate tax exemption, limited itemized deductions for state and local taxes to $10,000 annually, and retained the seven-bracket structure for individual income tax.
Many of the provisions impacting individuals and families are set to expire at the end of 2025, with tax increases taking effect on January 1, 2026. This means that most aspects of individual income tax will undergo substantial changes, resulting in higher taxes for over 60% of tax filers. The standard deduction, individual tax rates, and the child tax credit are some of the provisions affecting individual taxpayers that will expire. The child tax credit, which was increased from $1,000 to $2,000 per qualifying child under the TCJA, will revert to its previous structure. The phase-out threshold will also decrease, impacting unmarried taxpayers and married joint filers.
Additionally, the TCJA's expiration will affect itemized deductions, with limitations on itemized deductions being removed. However, more taxpayers will face the Pease limitation and the alternative minimum tax (AMT). The AMT was adjusted under the TCJA, with a reduction in income levels for exemption phase-out, and these amounts will be further adjusted for inflation in subsequent years.
The expiration of the TCJA's individual tax provision will result in higher taxes for households across all income levels, with a disproportionate impact on higher-income households. According to estimates, households in the lowest income quintile will pay slightly more in taxes, while those in the top 1% will experience a more significant increase in their tax obligations.
While the focus has been on the potential impact of the expiring provisions, it is important to recognize that the "One Big Beautiful Bill" (OBBB) of 2025 includes legislation that prevents most of the tax laws from reverting to their pre-TCJA state. This new legislation will introduce its own set of changes, some of which will take effect on January 1, 2026, while others will be retroactive and impact 2025 tax returns filed in 2026.
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Corporate tax rates
The Tax Cuts and Jobs Act (TCJA) of 2017 was a significant overhaul of the tax landscape for both individuals and corporations. While the TCJA's corporate tax rate reduction from 35% to 21% is permanent, several other provisions are set to expire at the end of 2025, which may impact corporate taxpayers.
One notable expiring provision is the deduction for small business income. The TCJA provided a 20% deduction for qualified pass-through income, benefiting sole proprietorships, partnerships, and S-corporations. This deduction will no longer be available if the TCJA is not extended. Additionally, the TCJA's pass-through business provisions, which allow similar treatment of corporate and non-corporate business income, are set to expire on January 1, 2026.
The alternative minimum tax (AMT) exemption amounts were increased under the TCJA, resulting in fewer taxpayers being liable for the AMT. If this provision expires, the AMT exemption for married couples filing jointly will be significantly lower in 2026.
The TCJA also doubled the estate tax exemption, benefiting high-net-worth individuals. If this provision expires, the exemption in 2026 will be approximately half of what it is under the TCJA.
While the corporate tax rate reduction is permanent, the overall impact of the TCJA's expiration remains uncertain. Partisan control of Congress will play a significant role in determining whether the TCJA provisions will be renewed, reformed, or allowed to expire. Republicans aim to extend the TCJA and further expand tax cuts, while Democrats seek to reform tax breaks for lower- and middle-income households and raise taxes on wealthier individuals and corporations.
It is worth noting that state-level corporate income tax rates and brackets may also vary across the US in 2025, with top rates ranging from 2.25% in North Carolina to 11.5% in New Jersey.
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Child tax credit
The Child Tax Credit (CTC) is a tax credit for eligible families with dependent children under the age of 17 at the end of the tax year. The CTC was expanded by the American Rescue Plan Act of 2021, which increased the value of the credit and allowed the IRS to distribute the payments in monthly instalments. The legislation also introduced advance payments, which are not included in the current tax law.
The TCJA increased the tax credit for each child under 17 from $1,000 to $2,000, and this amount is not adjusted for inflation. The maximum credit that can be refunded increased from $1,000 to $1,400 per child in 2018, adjusted for inflation and set at $1,700 in 2024. The TCJA also increased the income thresholds at which the credit phases out.
If the TCJA expires at the end of 2025, the child tax credit will fall back to $1,000, making the real value of the credit about 25% lower than it was in 2017. The expiration of the TCJA's individual tax provision is expected to raise government revenues by $4.6 trillion from FY2025-2034, impacting nearly every American.
For 2024 taxes, the IRS Child Tax Credit is worth up to $2,000 for each qualifying dependent child. You can claim the full amount if your income is at or below the modified adjusted gross income threshold. The refundable Additional Child Tax Credit is worth up to $1,700 per qualifying child. To qualify for the Child Tax Credit, the dependent must generally meet the following requirements:
- Be under 17 at the end of the tax year
- Be your son, daughter, stepchild, eligible foster child, brother, sister, or a descendant of one of these
- Not provide more than half of their own support for the tax year
- Have lived with you for more than half the tax year
- Be claimed as a dependent on your return
- Not file a joint return for the year
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Alternative minimum tax
The Alternative Minimum Tax (AMT) is a separate tax system that requires some taxpayers to calculate their tax liability twice: first, under ordinary income tax rules, then under the AMT. Taxpayers must then pay the higher of the two amounts.
AMT was enacted in 1969 to prevent wealthy taxpayers from using too many tax preferences to reduce their taxable income. The AMT has fewer preferences and different exemptions and rates than the ordinary system. It eliminates or reduces the value of tax preferences claimed under the ordinary system.
To calculate their Alternative Minimum Taxable Income (AMTI), taxpayers add certain deductions back into their income. For the 2024 tax year, taxpayers can then subtract an exemption of $85,700 for single filers and $133,300 for joint filers. Exemptions phase out once AMTI hits $609,350 for single filers and $1,218,700 for joint filers. After calculating their AMTI and applying the exemption, the resulting income of up to $232,600 faces a 26% rate, while income above that threshold faces a 28% rate.
Some tax credits that reduce regular tax liability do not reduce AMT tax liability. Taxpayers can use the special capital gain rates in effect for the regular tax if they are lower than the AMT tax rates that would otherwise apply.
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Estate tax
The Tax Cuts and Jobs Act (TCJA) of 2017 significantly impacted estate tax. The act doubled the basic exclusion amount (BEA) for tax years 2018 through 2025, resulting in a higher threshold before estate tax applies. For example, in 2018, the BEA was $11.18 million, increasing to $11.58 million in 2020. However, this increase is temporary, and the BEA is scheduled to revert to its pre-2018 level of $5 million (adjusted for inflation) in 2026. This reversion will result in a lower exclusion amount and potentially higher estate taxes for individuals dying in 2026 or later.
In July 2025, the One Big Beautiful Bill Act (OBBBA) was passed, enacting a permanent increase in the estate and gift tax lifetime exclusion amount for 2025 and subsequent years. This legislation amended the Internal Revenue Code to increase the basic exclusion amount to a maximum of $15 million per person for deaths or gifts made in 2026 and beyond. This change prevents an automatic decrease in the exclusion amount that would have occurred without this legislation.
It is important to note that tax laws can change, and the future of estate tax is uncertain. Individuals are advised to plan their estates based on current laws and consider strategies to reduce their taxable estate. Additionally, certain assets can be placed in specific types of trusts, like a Delaware Dynasty Trust, to provide a higher level of asset protection. By planning ahead, individuals can ensure that assets are effectively removed from their estate, along with any future appreciation or growth on those assets.
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Frequently asked questions
The Tax Cuts and Jobs Act (TCJA) is set to expire at the end of 2025.
The TCJA's expiration will result in substantial changes to individual income tax, with more than 62% of tax filers expected to experience tax increases in 2026. The child tax credit will revert to $1,000, and the $10,000 SALT deduction cap will no longer apply.
The impact on individual taxpayers will depend on their income level and filing status. Single taxpayers earning above $100,000 and married couples earning above $200,000 may experience higher taxes. On the other hand, single taxpayers earning under $200,000 and married couples earning under $400,000 may see an increase in their after-tax income.
