The 2025 tax cliff.
What expires and what to do before it hits.
Most provisions of the 2017 Tax Cuts and Jobs Act expire after December 31, 2025. The standard deductionstandard deductionA fixed dollar amount that reduces your taxable income without itemizing. Most people claim this instead of listing individual deductions.Full definition drops by roughly half. The top marginal rate rises. The estate exemption falls from approximately $13.99 million to approximately $7 million. Most US households owe more in 2026 than 2025 unless Congress passes new legislation.
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Unless Congress passes new legislation, seven major tax provisions revert after 2025. The standard deduction drops roughly in half. The top marginal rate rises from 37% to 39.6%. The estate exemption drops from approximately $13.99 million to approximately $7 million per person. The QBIQualified Business Income (QBI)Income from a self-employed business or partnership that may qualify for a 20% tax deduction under current law.Full definition deduction for self-employed people disappears entirely. Most middle-income households will see a 1-3% effective tax-rate increase if nothing passes.
Section 1 · What the TCJA was
The Tax Cuts and Jobs Act of 2017 (Public Law 115-97) was the largest overhaul of the US tax code in 30 years verify×DON'T TRUST, VERIFYClaim: TCJA was enacted as Public Law 115-97 on December 22, 2017.Verify at: congress.gov/bill/115th-congress/house-bill/1 ↗The bill text and final enacted version are on Congress.gov.. It made sweeping changes to both individual and corporate taxation.
Most corporate changes (including the 21% flat corporate rate) were made permanent. Most individual changes were temporary, scheduled to expire after December 31, 2025. The expiration was a budget-rule artifact, not a policy preference: making the individual cuts permanent would have exceeded the reconciliation rules' deficit limit. Congress can extend, modify, or let them lapse.
Section 2 · What expires after 2025
2025 (TCJA): Single approximately $15,000; MFJMarried Filing Jointly (MFJ)A tax filing status where a married couple combines their income and deductions on one tax return. approximately $30,000.
2026 (post-expiration): Single approximately $8,300; MFJ approximately $16,600 (estimated, inflation-adjustedinflation-adjustedA dollar number redrawn after stripping out the effect of rising prices, so you can compare what the money actually bought across years. A $30,000 salary in 1985 was worth more in real life than a $50,000 salary today. from pre-TCJA baseline) verify×DON'T TRUST, VERIFYClaim: Standard deduction reverts to roughly half its TCJA level after expiration.Verify at: Tax Foundation TCJA expiration analysis ↗ · CBO scoring ↗The pre-TCJA baseline is roughly the 2017 standard deduction inflation-adjusted. Tax Foundation and CBO publish projections..
Impact: Many households that currently take the standard deduction would face higher taxable income, or would need to itemizeitemizeListing specific tax-deductible expenses (charity, mortgage interest, state taxes, big medical bills) on your tax return one by one, instead of taking the flat lump-sum deduction the IRS gives everyone by default. Only worth the paperwork if your list adds up to more than the lump sum. again to make up the gap.
The top marginal rate returns from 37% to 39.6% on income above approximately $400,000 (single) / $470,000 (MFJ) inflationinflationA general increase in prices over time, meaning each dollar buys less than it did before.Full definition-adjusted from the pre-TCJA threshold verify×DON'T TRUST, VERIFYClaim: Top marginal rate reverts from 37% to 39.6%.Verify at: Tax Foundation rate comparison ↗Multiple brackets shift, not just the top. The 22% bracket goes to 25%; the 24% to 28%; the 32% to 33%..
Other brackets shift too: 22% to 25%, 24% to 28%, 32% to 33%. The 10% and 35% brackets are unchanged.
Under TCJA: $10,000 cap on the state and local tax deduction.
After expiration: Cap removed; full SALT deduction restored. Beneficiaries are itemizers in high-tax states (California, New York, New Jersey, Illinois, Massachusetts). For many such households, SALT restoration partially offsets the bracket and standard-deduction changes.
Under TCJA: $2,000 per child, up to $1,700 refundable (2025). After expiration: $1,000 per child, fully refundable up to that amount verify×DON'T TRUST, VERIFYClaim: CTC reverts to $1,000 per child after TCJA expiration.Verify at: Tax Policy Center CTC analysis ↗ · CBO ↗Tax Policy Center publishes the side-by-side comparison.. A family with two children loses up to $2,000 per year.
TCJA dramatically raised the Alternative Minimum Tax exemption, shielding most upper-middle-income households. After expiration, the lower exemption returns and millions more households become AMT-exposed. Especially relevant for high-W-2 earners in high-SALT states and anyone exercising Incentive Stock Options. See /niit-and-amt/ for the AMT mechanics in detail.
Under TCJA (2025): approximately $13.99 million per person verify×DON'T TRUST, VERIFYClaim: 2025 estate and gift exemption is approximately $13.99M per person.Verify at: IRS Estate Tax page ↗The IRS publishes the annual exemption amount; it is inflation-adjusted from the TCJA baseline..
After expiration: approximately $7 million per person (estimated, inflation-adjusted from pre-TCJA baseline).
Impact: Estates between $7M and $13.99M would become taxable. Wealthy families have a limited window to use the higher exemption through gifting before December 31, 2025. The IRS has confirmed that gifts made under the higher exemption will not be clawed back if the exemption later decreases verify×DON'T TRUST, VERIFYClaim: No clawback on gifts made under the higher TCJA exemption.Verify at: IRS final regulations on clawback ↗Treasury Decision 9884 (Nov 2019) and follow-on guidance establish the no-clawback rule..
Under TCJA: Up to 20% deduction on Qualified Business Income for self-employed people, sole proprietors, and pass-through business owners (subject to limits) verify×DON'T TRUST, VERIFYClaim: The 20% QBI deduction is a TCJA provision scheduled to expire after 2025.Verify at: IRS QBI page ↗IRC Section 199A is the QBI provision. It has a sunset date of December 31, 2025 absent congressional action..
After expiration: Eliminated. A business generating $150,000 in qualified income loses approximately $6,600/year in federal taxes from QBI alone (20% x $150k x 22% bracket). For S-Corp owners, the calculus on whether the S-Corp election still pays may shift. See /llc-vs-scorp/.
Section 3 · Who gets hit hardest
Assuming Congress takes no action by December 31, 2025, the impact distributes unevenly.
- Middle-income W-2 workers: smaller standard deduction means higher taxable income; bracket changes affect incomes in the 22-24% range. Tax Policy Center estimates an average increase of approximately $1,500-$2,500/year for a family of four verify×DON'T TRUST, VERIFYClaim: TPC estimates ~$1.5-2.5k/year average tax increase for middle-income families of four.Verify at: Tax Policy Center distributional analyses ↗TPC publishes distributional tables for TCJA expiration. Numbers vary by household configuration..
- Self-employed and small business: the QBI loss is the single biggest individual provision change. A $150k QBI loses ~$6,600/year. A $300k QBI loses ~$15,000/year.
- High earners in low-SALT states: the 37% to 39.6% rate increase applies above ~$400k single / ~$470k MFJ. SALT cap removal provides no offset in low-tax states.
- Wealthy estates near $7M: urgent gifting window before exemption drops. The no-clawback rule means gifts made now under the higher exemption are protected.
- High-W-2 earners in high-tax states with ISOsIncentive Stock Option (ISO)A right your employer gives you to buy company shares at a fixed price later. Cheaper taxes than other stock options if you hold long enough, but can trigger an unexpected extra tax called AMT.Full definition: AMT exposure returns. The combination of large SALT, lower AMT exemption, and ISO exercise spreads can produce surprise tax bills.
High-tax-state itemizers (especially CA, NY, NJ, IL, MA): SALT cap removal is large enough to outweigh the bracket changes for many households. The post-expiration tax bill can be lower than the TCJA tax bill for itemizers with state and local tax bills above $10,000.
Section 4 · What Congress might do
Three scenarios bracket the realistic outcomes.
All TCJA individual provisions extended permanently or for another 10 years. Republican preference. CBOCongressional Budget Office (CBO)A nonpartisan federal agency that provides economic and budget analysis to Congress. has scored full extension at approximately $4-5 trillion over 10 years verify×DON'T TRUST, VERIFYClaim: CBO scores full TCJA extension at $4-5T over 10 years.Verify at: CBO budget options and TCJA scoring ↗The exact figure varies with assumptions and the most recent CBO baseline..
Some provisions extended (lower rates, CTC) while others expire (SALT cap relaxed but reinstated at higher level, QBI scaled back, estate exemption partially reduced). Most likely compromise scenario across recent congressional patterns.
Congress fails to act by December 31, 2025. All provisions revert. Effectively a large tax increase on most households.
This page was written in early 2026. Legislation is moving. Check current status at congress.gov before making large tax-driven decisions.
Section 5 · What to do now
Run your 2026 tax projection under both scenarios (TCJA extended vs expired). Use the tax estimator. Identify which provisions actually affect you; not every change matters to every household.
Model your 2026 tax liability without the 20% QBI deduction. The S-Corp election break-even shifts when QBI disappears. Consider consulting a CPA before the 2026 tax year. See /llc-vs-scorp/ and /gig-worker-finance/.
The gifting window is open now and closes if exemption drops. The IRS has confirmed no clawback on prior gifts. Consult an estate attorney before December 31, 2025. See /wills-and-estate-planning/ and /bitcoin-estate-planning/.
SALT cap removal under full expiration could benefit you, but only if you itemize. Model both scenarios. If your state and local tax bill exceeds $10,000 and you currently take the standard deduction because of the SALT cap, post-expiration could lower your federal bill.
CTC dropping from $2,000 to $1,000 increases your effective tax rateeffective tax rateYour actual average tax rate, total tax paid divided by total income. Always lower than your marginal rate.Full definition. May make Roth conversions in 2025 more attractive before brackets shift. See /roth-conversion-timing/ and the Roth conversion calculator.
- Public Law 115-97, "An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018." December 22, 2017 · congress.gov.
- Tax Foundation. Tax Cuts and Jobs Act: A Comparison. · taxfoundation.org.
- Tax Policy Center. Distributional analyses of TCJA expiration · taxpolicycenter.org.
- Congressional Budget Office. Budget options and TCJA cost estimates · cbo.gov.
- IRS. Estate and gift tax page · irs.gov/businesses/small-businesses-self-employed/estate-tax.
- IRS. Final regulations confirming no clawback of TCJA-era gifts · irs.gov.
- IRS. Qualified Business Income Deduction · irs.gov.
- Joint Committee on Taxation. Revenue tables for TCJA provisions · jct.gov.
Last updated 2026-04-25 · legislation is moving; check congress.gov for current status. Not financial advice. Do your own research.