What a TCJA Extension Means for Your Taxes

The Tax Cuts and Jobs Act (TCJA) of 2017 was an overhaul of the U.S. tax code. While some changes, like the reduction of the corporate tax rate to 21%, were permanent, a substantial portion of the law was designed with a built-in expiration date. These temporary provisions, which primarily affect individual taxpayers, families, and pass-through businesses, are scheduled to expire on December 31, 2025.

This impending expiration creates a legislative challenge for Congress. If no action is taken, the tax code will largely revert to its pre-2017 state, a shift with financial implications for millions of American households. The debate over a TCJA extension involves navigating financial consequences and political disagreements about tax policy and the national debt.

Expiring Tax Provisions for Individuals

The TCJA restructured individual income tax rates and brackets. The law retained the seven-bracket system but lowered the marginal rates for five of them, with the top rate falling from 39.6% to 37%. Without an extension, the tax rates will revert to their pre-TCJA levels of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% in 2026. The income thresholds for these brackets will also return to their previous, narrower structure.

The TCJA also altered how taxpayers calculate their taxable income by nearly doubling the standard deduction. To offset this increase, the law suspended personal exemptions. If these provisions expire, the standard deduction will be cut roughly in half, and personal exemptions will be reinstated.

The TCJA placed a $10,000 annual cap on the state and local tax (SALT) deduction, which impacted taxpayers in high-tax states. Prior to the TCJA, taxpayers who itemized could deduct the full amount of their state and local income, sales, and property taxes. Should this provision sunset, the cap will be eliminated, and taxpayers will again be able to deduct their eligible state and local taxes without this limitation.

For families, the TCJA doubled the Child Tax Credit (CTC) from $1,000 to $2,000 per qualifying child and increased the income thresholds for when the credit begins to phase out to $200,000 for single filers and $400,000 for joint filers. The law also introduced a $500 credit for other dependents. Expiration would mean the CTC reverts to $1,000 per child, and the phaseout thresholds would drop to $75,000 for single filers and $110,000 for joint filers.

Finally, the TCJA suspended or limited several other itemized deductions. It eliminated most miscellaneous itemized deductions, which previously allowed taxpayers to deduct certain professional and investment-related expenses. It also lowered the cap on the mortgage interest deduction to interest on up to $750,000 of acquisition indebtedness, down from $1 million. Expiration would restore these miscellaneous deductions and the higher mortgage interest limit.

Expiring Provisions for Businesses and Estates

The TCJA introduced a tax break for businesses structured as pass-through entities, where profits are passed to the owners and taxed at individual rates. This provision, the Section 199A Qualified Business Income (QBI) deduction, allows owners of sole proprietorships, partnerships, and S corporations to deduct up to 20% of their qualified business income. This was created to provide a benefit to pass-through businesses in light of the cut in the corporate tax rate.

The QBI deduction effectively lowers the top marginal tax rate on pass-through income. The calculation can be complex, with limitations based on the type of business, the owner’s taxable income, W-2 wages paid, and the cost of its property. This entire deduction is temporary and scheduled to disappear completely after 2025, which would subject all pass-through business profits to regular individual income tax rates.

Another temporary change involved the federal estate and gift tax, levied on large transfers of wealth. The TCJA doubled the lifetime exemption amount, which is the total value of assets a person can give away without incurring the tax. The exemption rose to an inflation-adjusted $13.99 million per person for 2025.

If the law sunsets, this exemption amount will be cut by about half, projected to be around $7 million per person in 2026. This change would expose a larger number of estates to the federal estate tax, which has a top rate of 40%. This would require more families to engage in estate planning to manage their potential tax liability.

Financial Consequences of TCJA Expiration

The expiration of the TCJA’s individual provisions would lead to a tax increase for a majority of American households. Consider a married couple with two children under 17 and an income of $150,000. Under TCJA rules, they benefit from a large standard deduction and a $4,000 Child Tax Credit. If the law reverts, their standard deduction would shrink, but they would gain personal exemptions. The net effect for many middle-income families would be a higher tax bill, as the loss of the enhanced standard deduction and larger child credit often outweighs the benefit of restored exemptions.

For taxpayers in areas with high property and income taxes, the financial consequences are mixed. While they would face higher marginal tax rates, the return of the unlimited SALT deduction would provide relief. For example, a taxpayer currently capped at a $10,000 deduction who pays $30,000 in state and local taxes would be able to deduct an additional $20,000 from their income. This change illustrates how the expiration’s impact varies based on geography and income level.

Owners of pass-through businesses face a financial shift. The disappearance of the 20% QBI deduction would directly increase their taxable income. For a business owner with $200,000 in qualified income, the loss of the QBI deduction could mean paying taxes on an additional $40,000 of income. This would raise their effective tax rate and reduce the capital available for reinvestment or hiring.

From a macroeconomic perspective, the expiration would affect federal revenues and the national debt. According to the Congressional Budget Office (CBO), allowing the individual and estate tax cuts to expire would increase federal tax collections. Conversely, making these cuts permanent without offsetting spending cuts or other revenue increases would add trillions to the national debt, potentially slowing long-term economic growth.

The Political Debate Surrounding an Extension

Whether to extend the expiring TCJA provisions is a point of contention between the two main political parties, setting the stage for a legislative battle in 2025. The Republican party platform supports making the individual tax cuts permanent, arguing that this provides certainty for families and businesses and encourages economic growth.

The Democratic party platform favors letting the tax cuts expire, particularly for high-income households. Their position centers on using the resulting increase in federal revenue to fund other priorities or reduce the national deficit. A common proposal is to extend the provisions only for individuals earning below a certain threshold, such as $400,000 per year.

These differing philosophies lead to several potential legislative scenarios:

• A full extension of all expiring provisions, which would maintain the current tax structure but at a cost to the federal budget.
• A full expiration, where the tax code reverts to pre-2018 law, resulting in higher taxes for most Americans but also increased government revenue.
• A partial extension or a compromise bill, where lawmakers extend popular provisions while allowing others to expire.

Specific elements like the $10,000 SALT cap are complex, as repealing or modifying the cap has bipartisan support from lawmakers in high-tax states but is opposed by others. The outcome will depend on the political makeup of Congress and the White House.