The Tax Cuts and Jobs Act (TCJA) became effective over six years ago as a major Trump administration tax code overhaul, making it the biggest change to tax law and policy in recent decades. (That's why the TCJA is also known as the "Trump tax cuts.")
However, many key provisions in the TCJA are set to expire soon — at the end of 2025 if Congress doesn’t act. Some call this the TCJA “tax cliff” or the TCJA sunset.
The TCJA affects millions of taxpayers across the U.S. since its provisions cover everything from changes to the standard deduction and the child tax credit to income tax rates and even the availability and amounts of other popular tax credits and deductions.
The Tax Policy Center estimates that 53% of taxpayers could see an increase in their tax burden if certain provisions are left to expire.
We’ll cover what the TCJA is, which provisions impact your household, and what changes you might see go away or change if Congress doesn't act.
Tax Rates
'Trump tax cuts': TCJA income tax rates
One major change brought by the TCJA was a temporary reduction in individual federal income tax rates.
Almost every U.S. taxpayer was affected in some way. Below are a few highlights from the new tax rates and the bracket changes tied to them. We’ll use this data to illustrate examples of the law’s impact.
Source: Tax Policy Center. The tax bracket income thresholds here compare 2018 prior and post-TCJA amounts to show the immediate impact of the TCJA on tax brackets.
Federal income tax brackets are adjusted annually for inflation, so these comparisons do not reflect current federal income tax brackets for the 2024 tax year.
As shown above, a single filer with income over $38,700 before the TCJA was enacted would have been subject to a 25% federal tax rate. The year following the TCJA's enactment, that same income level was instead subject to a 22% tax.
Another example from above is a married filing joint couple with income over $80,050 before the TCJA was enacted would have been subject to a 39.6% marginal federal tax rate. The year after the TCJA was signed into law, those earnings were instead subject to a 35% tax.
Note: Remember that the above examples merely illustrate the immediate impact of the change in tax rates from 2017 to 2018. Since federal tax brackets are adjusted yearly for inflation, the income tax brackets for 2024 are not reflected in that chart. For more information, see 2024 Federal Tax Brackets and Income Tax Rates.
Most tax rates were reduced under TCJA. However, the lowest tax rate of 10% was not. Taxpayers in the lowest bracket before and after the TCJA could be subject to a 10% tax. Households earning $450,000 or more receive about 45% of benefits from the TCJA.
As you can see from the above examples, under the TCJA, those with higher incomes generally save more on taxes than taxpayers with lower incomes. When the TCJA expires (and if Congress doesn’t act) federal income tax rates will revert to pre-TCJA percentages.
Child Tax Credit
How did the TCJA change the child tax credit?
The TCJA also cut personal exemptions and expanded the federal child tax credit (CTC). Families can no longer take the personal and dependent exemption, which was $4,150 (indexed for inflation).
Note: The TCJA also changed the child tax credit requirements regarding Social Security numbers. Before, a qualifying child didn’t have to have an SSN. After, children with eligible SSNs couldn’t qualify for the full credit.
If the law expires, the personal and dependent exemption will be reinstated. Before the TCJA, 292.7 million people claimed personal and dependent exemptions. Total taxpayer savings was in the billions, so individuals could potentially see additional savings with reinstatement.
However, upon TCJA expiration, the $2,000 CTC will revert to $1,000 credit per child. The qualifying child’s age for this credit will also decrease to 16 and under (right now the credit is for children 17 and under). As Kiplinger previously reported, data shows that poverty levels can increase when families no longer benefit from an expanded CTC. But it hasn’t ended there.
Sen. JD Vance, (Vice President-elect) floated an enhanced child tax credit, noting its success will be mostly up to Congress. During the presidential campaign, Vance suggested a CTC of $5,000 for all parents while removing a “massive cutoff” for lower-income households. (For more information, see Kiplinger's report, Can Tariffs Make Childcare More Affordable?.)
So, the child tax credit could be a key tax point in the new year as Congress continues to deliberate on an expanded credit.
Related: How Much is the 2024 Child Tax Credit?
Standard Deduction
Why can’t I itemize anymore?
The TCJA almost doubled the baseline federal standard deduction.
When the TCJA was enacted, the standard deduction jumped from $6,500 to $12,000 (single filer). For married filing joint filers, the standard deduction increased from $13,000 to $24,000. The standard deduction is indexed annually for inflation.
Some bipartisan organizations suggest that the larger standard deduction offered by the TCJA leads to a progressive tax rate (a rate that increases as taxable income increases). This would mainly benefit middle-class and low-income households.
Sure enough, according to the Center for Economic and Policy Research (CEPR), studies have shown that more folks with $200k or less in income took the standard deduction when the TCJA was first instated. However, it should also be noted that data show most people took the standard deduction before TCJA.
TCJA also limits the amount of state and local tax (SALT) you can deduct. The SALT deduction includes property tax and other taxpayer liabilities already taken out for state and local services.
Before, the deduction was limitless; now, you can only deduct up to $10,000 of your state and local taxes. This mainly affects those with high-worth homes or state and local taxes in high-cost areas, like New York, New Jersey, or California.
For example, homeowners can no longer itemize the full amount they pay in state, local, and property taxes if they pay more than $10,000. This causes those taxpayers to gain less benefit.
For more information, see Kiplinger's report: Will the SALT Deduction Cap Be Repealed or Raised in 2025?
Additionally, the TCJA affected other miscellaneous itemized deductions in the following ways:
- It limited deductible medical expenses and deductible home equity loan interest
- Increased the charitable contribution deduction rate from 50% to 60%
- Repealed a “Pease” limitation which reduced itemized deductions based on taxable income above certain thresholds
The TCJA also eliminated the deduction for unreimbursed employee expenses and tax prep fees, the deduction for alimony, hobby expenses, and moving expenses (unless you are military and the deduction for casualty and theft losses, except for certain losses in federally declared disaster areas).
If the TCJA expires, these deductions will revert to prior law, except for the limit on deductible medical expenses, which will remain permanent. Medical expenses are limited to 7.5% of adjusted gross income (AGI).
The standard deduction will also decrease after the expiration of the TCJA, perhaps offsetting the effects of allowing more itemized deductions.
For information about the current standard deduction, see How Does the 2024 Standard Deduction Work?
And there are other tax provisions the law eliminated. We’ll go through some of those next.
Alternative Minimum Tax
How does the TCJA affect AMT?
The Alternative Minimum Tax (AMT) places a floor on the amount higher-income taxpayers must pay regardless of credits or deductions taken on their taxes.
The AMT’s income level and phase-out were raised under TCJA. This means fewer higher-income people qualify for AMT (which for 2024 applies to taxpayers earning above $232,600). If a taxpayer does qualify, they pay less in taxes.
For example, the Tax Policy Center estimates that the number of taxpayers who would have paid AMT the year TCJA was enacted fell by 4.8 million.
Estate Tax
TCJA estate tax exemption
Another benefit for wealthier taxpayers under the TCJA is the doubling of the federal estate tax exemption.
In 2017, instead of paying taxes on estates above $5.6 million, higher-income individuals were not taxed until $11.2 million. The threshold is inflation-adjusted annually, with the current exemption level at $13.61 million.
Both of these higher thresholds — for AMT and estate tax — will go away if the TCJA is left to expire.
Corporate Tax
What did the TCJA do for businesses?
The TCJA changed taxes for businesses, too. For example, the TCJA cut the corporate income tax (CIT) from 35% to 21%.
Though the effect of lower corporate tax rates is debated in economic circles, the Tax Foundation reports the burden of the CIT falls on consumers. Consequently, a lower CIT might entice companies to raise wages and lower prices for buyers.
Other changes the law enacted for businesses include:
- Created a 20% deduction on qualified business income for some business owners (pass-through entities)
- Limited deduction for meals and entertainment expenses (the latter are generally not deductible)
- Largely eliminated tax deductibility of net operating losses (NOL) for businesses (the TCJA limited the NOL deduction to 80% of taxable income and eliminated most carrybacks)
- Limited business interest expenses
- Allowed 100% expensing on some business property for specific tax years (This provision was set to phase out gradually after 2022)
That last point, on expensing business property, concerns depreciation. Normally business assets are depreciated over their useful life (typically 5, 10, or 15 years). Before the TCJA, tax law generally allowed some equipment to be partially expensed, but it was only 40% of qualifying assets.
The TCJA provision allows businesses to fully and immediately expense their qualifying short-lived assets.
Accelerated depreciation creates a greater tax difference between reportable income (what the stockholders see) and taxable income (what the IRS sees). But this difference is temporary. In later years, when the asset has been fully expensed for tax purposes, but not for reportable income purposes, the business will pay more tax for that asset.
That is why accelerated depreciation may be called a "deferred tax liability." Businesses pay less in taxes now for greater tax liability in the future.
Effectively, immediate expensing allows companies to invest more in the short term. This may create more jobs, boost productivity, and raise wages. According to the Tax Foundation, some proponents of this part of the TCJA have argued for the policy to be made permanent because it is a built-in mechanism of the tax code and wouldn't require additional spending provisions to be made.
TCJA Sunset
TCJA expiration: What it means for you
The TCJA is just one major issue that may come to a head in the new year. While some of its provisions don't sunset after 2025, others do.
The Tax Policy Center predicts that if Congress doesn’t take action, households with incomes in the top 1% will receive an average tax cut of $61,090 in 2025, compared to an average tax cut of less than $400 for households in the bottom 50%.
Either way, you may want to get a head start on your 2026 tax planning. Consult with a tax planner to look at your financial situation to see whether any looming tax changes apply to you.
