Understanding the Tax Cuts and Job Act Expiration

What Happens if the Tax Cuts and Jobs Act (TCJA) Expires in 2025?

The Tax Cuts and Jobs Act (TCJA), passed in 2017, brought many changes to the tax code. But the big catch is that many of these changes are temporary and will expire at the end of 2025. So, what does that mean for you? Here’s a quick rundown of the key changes you can expect if the TCJA expires.

1. Higher Income Tax Rates

One of the most noticeable changes is that tax rates for individuals will go back up. Under the TCJA, tax rates were lowered for almost every income bracket, but when the law expires, the rates will revert to their old, higher levels. For example:

• The 10% tax bracket will go back to 15%.
• The 12% bracket will go back to 15%.
• The 22% bracket will go back to 25%, and so on.

This means that, in 2026 and beyond, many people will end up paying more taxes on the same income.

2. Smaller Standard Deduction

The TCJA doubled the standard deduction to make filing taxes easier. For example:

• Single filers got a standard deduction of $12,000, up from $6,350.
• Married couples got a $24,000 standard deduction, up from $12,700.

When the TCJA expires, those deductions will drop back down to the lower pre-TCJA levels, meaning higher taxable income and potentially more taxes for many taxpayers.

3. Smaller Child Tax Credit

The TCJA increased the child tax credit to $2,000 per child and raised the income limits for who could claim it. If the TCJA expires, the child tax credit will decrease back to the pre-TCJA amount of $1,000 per child and the phaseout income limits will return to lower levels. This means less financial help for families with children.

4. Lower Estate Tax Exemption

The TCJA doubled the amount of money you could leave to heirs without paying estate taxes. In 2020, this amount was $11.58 million per person. When the TCJA expires, this exemption will drop back down to about $5.49 million(adjusted for inflation). This means more estates will be subject to estate tax, impacting wealthier families.

5. Corporate Taxes Will Increase

The TCJA lowered corporate tax rates from 35% to 21%. When the TCJA expires, corporate tax rates will rise back to 35%. This means businesses will face higher taxes, which could affect their profitability and decisions about investing or expanding.

What Does This Mean for You?

If the TCJA expires as planned, you could end up paying more taxes. From higher income tax rates to a smaller child tax credit, the expiration of these provisions will affect individuals, families, and businesses alike. However, some of the benefits of the TCJA, like bigger deductions and child tax credits, will go away, meaning you might owe more in taxes.

It’s also worth noting that Congress could make changes to the tax code before the TCJA expires, so things might change before 2026. If you’re concerned about how these changes will affect you, consider meeting with a financial professional.