Major Tax Changes in 2026

July 27, 2024

What to Expect as the Tax changes and Jobs Act Expiration Looms

As the clock strikes midnight on December 31, 2025, a wave of significant tax changes will sweep across the United States, experts warn. The Tax Cuts and Jobs Act expiration will introduce sweeping tax reforms, affecting nearly every American. Unless Congress takes action, the major provisions of the TCJA will expire, leading to substantial shifts in tax rates, credits, and deductions.

The End of the TCJA Era: What’s at Stake?

The potential tax shifts may seem distant, but tax professionals urge individuals to start preparing now to avoid unexpected surprises. “It’s going to be the Super Bowl of tax law changes in less than 18 months,” warns Mark Steber, Chief Tax Information Officer at Jackson Hewitt. As we approach 2026, individuals should be aware that tax rates are poised to rise significantly due to the Tax Cuts and Jobs Act expiration.

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Rising Tax Rates: What You Need to Know

The Tax Cuts and Jobs Act (TCJA), championed by former President Donald Trump, reduced tax rates and adjusted income tax brackets. For example, a married couple with a taxable income of $250,000 saw their rate drop from 33% in 2017 to 24% in 2024. Similarly, individuals earning $39,000 saw their top tax rate fall from 25% to 12%. The top bracket rate decreased from 39.6% to 37%. However, if the TCJA provisions expire, these rates will revert to their 2017 levels.

To minimize future tax burdens, experts suggest considering strategies such as accelerating income into 2024 and 2025 or converting traditional IRA assets to Roth IRAs. “By taking advantage of the lower rates now, you can potentially save money in the long run,” advises Nayan Lapsiwala, Wealth Management Director at Aspiriant.

The Return of Itemization: What You Should Prepare For

One significant change involves the standard deduction. Under the TCJA, the standard deduction was nearly doubled, making itemizing less common. In 2020, about 90% of taxpayers took the standard deduction, compared to 70% in 2017. The TCJA also eliminated personal exemptions, which somewhat offset the benefit of the increased standard deduction.

If the TCJA provisions expire, the standard deduction will decrease, and personal exemptions will return. This shift means more taxpayers will need to itemize deductions again. Keeping detailed records of charitable contributions and other deductible expenses will become essential once more, according to Lapsiwala.

Andrew Lautz from the Bipartisan Policy Center highlights that taxpayers will notice changes in their withholding amounts as early as 2026. “With a lower standard deduction and higher tax rates due to the Tax Cuts and Jobs Act expiration, individuals could see their paychecks shrink by $50 to $100 or more,” he notes.

Shrinking Child Tax Credit: What Families Can Expect

The TCJA increased the child tax credit to $2,000 per child, with a refundable portion phased in at $2,500 of earned income. If Congress doesn’t act before the Tax Cuts and Jobs Act expiration, this credit will revert to $1,000 per child, with the refundable portion starting at $3,000 of earned income. Although a Republican bill proposed expanding the credit, it failed to pass the Senate.

The Impact on Work-from-Home Deductions

Under the TCJA, W-2 employees lost the ability to deduct unreimbursed job-related expenses. If the TCJA sunsets, these deductions will return, benefiting those who work from home. Previously, employees could deduct expenses such as mileage, home office supplies, and internet costs.

Changes for Home Buyers and Movers

For those purchasing homes, the TCJA limited the mortgage interest deduction to the first $750,000 of mortgage debt. If the TCJA provisions expire, this limit will increase to $1 million. This change could be particularly advantageous for homebuyers facing high home prices and interest rates. Additionally, if you relocate for work, you may once again be able to deduct moving expenses on your federal taxes—a benefit that was removed under the TCJA, except for military personnel.

The Potential Return of the Alternative Minimum Tax (AMT)

The AMT, designed to ensure high-income individuals pay their fair share of taxes, saw a drastic reduction in the number of taxpayers subjected to it due to TCJA reforms. The number of AMT taxpayers fell from over 5 million in 2017 to just 200,000 in 2018. However, if the TCJA expires, up to 7 million people could be impacted by the AMT once more.

The SALT Deduction Cap: A Potential Reversal

The TCJA capped the state and local tax (SALT) deduction at $10,000. If this cap is eliminated due to the Tax Cuts and Jobs Act expiration, high-income individuals in states with high taxes, like California and New York, could see significant changes in their tax bills. The removal of the cap could potentially cost $197 billion over the next decade.

Preparing for the Changes

With these potential tax shifts on the horizon, it’s crucial for individuals to start planning now. Consider consulting with a tax professional to strategize on how to minimize your tax liabilities and take advantage of current benefits before they potentially disappear.

Stay informed and proactive to navigate the upcoming changes effectively, ensuring that your tax situation remains as advantageous as possible.

For expert advice and personalized tax planning, contact Raygoza Income Tax today. Our team of professionals is here to help you prepare for the Tax Cuts and Jobs Act expiration and ensure you maximize your financial well-being.

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