You may be surprised to learn that the 2017 Tax Cuts and Jobs Act (TCJA) for individual taxpayers (also known as the Trump Tax Cuts) was always intended to be temporary. That’s right, only the corporate provisions in the TCJA are permanent. For individual taxpayers, the tax cuts are scheduled to expire on December 31, 2025.
Depending on the outcome of the 2024 presidential election, when it comes to tax rates in 2026, the future is uncertain. Here are the most significant TCJA provisions set to expire that will affect individual taxpayers.
Higher Individual Tax Rates
When the TCJA expires, tax rates will revert to the previous higher brackets. For example, the top marginal rate is 37% but will likely return to 39.6%. Unless Congress extends the tax cuts, federal workers and retirees will likely have to pay 1% to 4% more in personal taxes even if their taxable income remains the same.
Reduction Of The Standard Deduction
When the TCJA went into effect, the standard deduction nearly doubled for individuals and families. This enabled an estimated 90% of taxpayers to skip itemizing their deductions. Once these tax cuts expire, the standard deduction is expected to be half as much and you may want to consider itemizing your deductions instead.
“This change would benefit those living in states with high property and income taxes.”
Elimination Of The SALT Cap
The deduction for state and local taxes (SALT) was capped at $10,000 under the TCJA. If the cap is lifted, you may be able to take the full SALT deduction for all state and local property taxes and income taxes. This change would benefit those living in states with high property and income taxes.
Lower Child Tax Credit
The TCJA doubled the child tax credit from $1,000 to $2,000 for each child under age 17 and increased the income threshold phaseouts. If the child tax credit reverts to pre-TCJA amounts and lowers phase-out thresholds, the value of the credit will be significantly reduced.
Lower Estate Tax Exemption
For wealthy individuals, the estate tax exemption doubled under the TCJA. If it reverts to pre-TCJA levels in 2026, the current exemption of approximately $28.6 million for married couples will drop to about $14.3 million.
For federal workers and retirees, the expiration of the Trump Tax Cuts will likely bump you into a higher tax bracket. That’s why it’s important to work with a tax professional to develop a strategic plan for the coming years. Connect with an FRC® trained advisor to learn more.
