Higher tax rates, smaller child tax credit and other changes await as Trump tax cuts end

At the stroke of midnight December 31, 2025, nearly every American will experience a tsunami of tax changes, tax professionals warn.

Major provisions in the Tax Cuts and Jobs Act of 2017 (TCJA) expire then unless Congress extends them. If the TCJA provisions sunset, most everyone will be affected one way or another, they said. Tax brackets, income tax rates, child tax credit, state and local tax deductions, mortgage interest deductions and much more will literally change overnight.

The potential changes sound far away, but tax experts say people need to be aware and consider steps now to ensure they don’t face a host of tax surprises.

“It’s going to be the Super Bowl of tax law changes in less than 18 months,” said Mark Steber, chief tax information officer at tax preparer Jackson Hewitt. Changes in deductions and credits will affect people differently, but Steber said everyone’s “tax rates will be higher. That’s inarguable.”

Why are tax rates going up in 2026?

TCJA, which was initiated by President Donald Trump, lowered tax rates across the board and shifted the thresholds for several income tax brackets. Some people saw a bigger reduction than others but pretty much everyone gained at least a little, tax experts said.

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For example, a married couple whose total income minus deductions is $250,000 would have had a 33% tax rate in 2017, but only 24% in 2024. An individual making $39,000 in taxable income in 2017 would have had a top tax rate of 25% but just 12% in 2024. For those in the top tax bracket, the rate dropped to 37% from 39.6%.

If the provision isn’t renewed, tax rates revert to their 2017, pre-TCJA rates.

To pay less tax, Americans might consider taking advantage of the lower rates now by accelerating income into 2024 and 2025 if they can. For example, retirees may want to withdraw slightly more than their required minimum distribution in these years, said Nayan Lapsiwala, wealth management director at Aspiriant.

Others may consider a Roth conversion to save money by paying the lower tax rates now and no tax when they withdraw later from Roth accounts, he said.

Additionally, “you might reconsider the timing of deductions if you anticipate your tax rate will be higher,” said Evan Morgan, principal for tax advisory services at professional services firm Kaufman Rossin. “Defer deductibles like charitable contributions, retirement contributions” to lower your income starting in 2026.

Get used to itemizing again

The standard deduction, which reduces a person’s taxable income, basically doubled under Trump’s tax cuts, allowing many more to use it rather than itemize.

In tax year 2020, about 90% of tax filers claimed the standard deduction, up from about 70% in 2017, according to the left-leaning think tank Tax Policy Center.

Along with the increase in the standard deduction, TCJA eliminated the personal exemption which was $4,050 per person.  “The loss of personal exemptions offset some of the gain from higher standard deductions, but the net result was an increase in the taxable income threshold in 2018,” which helped people, Tax Policy Center said.

If this provision expires, the standard deduction will drop, personal exemptions resurface, and more people would itemize their taxes again, tax experts said.

Itemization means deductions become more valuable, and Americans will again have to keep receipts for charitable contributions and other deductible items in order to claim them, Lapsiwala said.  

Americans would also immediately feel the effects of the combination of higher tax rates and a lower standard deduction for tax year 2026 in their paychecks, said Andrew Lautz, associate director of nonprofit, center-leaning think tank Bipartisan Policy Center’s Economic Policy Program.

Withholding amounts are based on your expected income and the tax rate on that income and assumes you take the standard deduction, which will be lower if TCJA expires.

“People are going to be seeing a lot of higher tax withholding,” he said. “For some, it could be a $50 to $100 difference.”

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Child tax credit to shrink

TCJA eliminated the personal exemption for each dependent under age 17 but doubled the child tax credit to $2,000 per person, with a $1,700 refundable portion in 2024 phased in starting at $2,500 in earned income.

If Congress does nothing by the end of 2025, the child tax credit will revert back to $1,000 per child aged 16 years and under. It would be refundable, and phased in starting at $3,000 of earned income.

Earlier this year, the Republican-controlled House passed a bill that would expand the child tax credit. It included a phased increase to the refundable portion for 2023, 2024, and 2025 and adjust the tax credit for inflation starting in 2024.

Work requirements would remain, but low-income families who don’t pay income taxes would get up to $1,800 refunded of the $2,000 per-child credit instead of the current $1,600. The amount would rise to $1,900 in 2024 and $2,000 in 2025.

The Senate never voted on the bill, and so the legislation died.

Work from home could win

Under TCJA, W-2 employees were no longer allowed to deduct job-related expenses that the company didn’t reimburse. If TCJA expires, that provision will return, which could benefit millions of Americans who work some portion of their work week at home.

The old rules, which would return, allowed W-2 workers to take tax deductions for a wide range of unreimbursed work-related expenses including mileage, home office supplies, union dues, uniforms, internet, telephone, magazine subscriptions, and meals.

Home buyers may get a boost

Through 2025, you can deduct home mortgage interest only on the first $750,000 ($375,000 if married filing separately) of indebtedness.

If TCJA sunsets, the amount of mortgage interest you can deduct increases to $1 million ($500,000 if filing separately) of your mortgage.

Considering inflation, high home prices and interest rates, this “can have a significant impact,” for house hunters, said Miklos Ringbauer, founder of accounting and tax strategy firm MiklosCPA.

Moving expense deduction returns

If you relocate for work, you’ll be able to deduct the costs from your taxes again if TCJA sunsets, Ringbauer said.

During TCJA years (2018-2025), you could only deduct these costs on federal taxes if you were in the military. If you weren’t and your company paid for relocation, it was considered compensation and added to your income that you would pay tax on, he said.

Alternative minimum tax could ensnare more people

Alternative minimum tax is a parallel tax system designed to ensure high-income individuals pay their fair share of taxes. High-income Americans calculate their tax obligations under regular tax rules and under AMT rules, which limit deductions, and then pay the higher amount owed.

TCJA included changes that made far fewer people subject to AMT. In 2018, the number of people who had to pay AMT fell to just 200,000 from more than 5 million in 2017, before TCJA, according to the Tax Policy Center.

If TCJA provisions expire, TCJA changes would be unwound and subject as many as 7 million people to AMT, experts said.

“People making $200,000 to $400,000 could be subject to AMT,” Lautz said, whereas under TCJA rules, basically only millionaires paid.

State and local tax deduction gets uncapped

Under TCJA, up to $10,000 of state and local taxes (SALT) paid could be deducted on federal income tax returns. If TCJA sunsets, the cap would be eliminated.

The deduction is particularly important for high-income individuals in high-tax states like California or New York. Before TCJA, 91% of the benefit of the SALT deduction was claimed by those with income above $100,000 and concentrated in six states: California, New York, New Jersey, Illinois, Texas, and Pennsylvania, according to Tax Foundation, an international think tank.

“This is a big deal” from a budgetary standpoint, Lautz said.

If the cap were eliminated, it would cost $197 billion over fiscal years 2024-2033, according to the University of Pennsylvania’s Penn Wharton Budget Model.

If there isn't anything to pay for that, the deficit could widen, Lautz said. Ballooning deficits could slow economic and wage growth, some economists say.

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.