Understanding the Impact of TCJA Expiration on 2026 Tax Brackets

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As the Tax Cuts and Jobs Act (TCJA) nears its expiration date, taxpayers and financial planners are eager to understand the potential changes to the tax brackets in 2026. The Tax Foundation, a leading tax policy research organization, has analyzed the potential effects of the TCJA's expiration on the tax code. In this article, we will delve into the possible changes to the 2026 tax brackets and what they might mean for individuals and businesses.
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The TCJA, signed into law in 2017, introduced significant changes to the tax code, including the reduction of tax rates and the modification of tax brackets. The law's provisions are set to expire on December 31, 2025, unless Congress takes action to extend or make them permanent. If the TCJA expires, the tax brackets will revert to their pre-2018 levels, resulting in higher tax rates for many taxpayers.

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Changes to Individual Tax Brackets

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According to the Tax Foundation's analysis, the expiration of the TCJA would lead to significant changes to the individual tax brackets in 2026. The current tax brackets, which range from 10% to 37%, would be replaced by the pre-2018 brackets, which ranged from 10% to 39.6%. The new tax brackets would be as follows:
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  • 10%: $0 to $9,875 (single) and $0 to $19,750 (joint)
  • 15%: $9,876 to $40,125 (single) and $19,751 to $80,250 (joint)
  • 25%: $40,126 to $80,250 (single) and $80,251 to $171,050 (joint)
  • 28%: $80,251 to $164,700 (single) and $171,051 to $326,600 (joint)
  • 33%: $164,701 to $214,700 (single) and $326,601 to $414,700 (joint)
  • 35%: $214,701 to $518,400 (single) and $414,701 to $622,050 (joint)
  • 39.6%: $518,401 and above (single) and $622,051 and above (joint)
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Impact on Businesses

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The expiration of the TCJA would also have significant implications for businesses. The current corporate tax rate of 21% would increase to 35%, making the United States less competitive in the global market. Additionally, the pass-through deduction, which allows certain business owners to deduct up to 20% of their qualified business income, would expire.
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The Tax Foundation's analysis suggests that the expiration of the TCJA would lead to a significant increase in tax revenues, but it would also result in a decrease in economic growth. The organization estimates that the expiration of the TCJA would lead to a 1.4% decrease in GDP and a 0.6% decrease in wages.

In conclusion, the expiration of the TCJA would have significant implications for taxpayers and businesses. The changes to the tax brackets in 2026 would result in higher tax rates for many individuals and businesses, leading to a decrease in economic growth. As the expiration date approaches, it is essential for taxpayers and financial planners to stay informed about the potential changes to the tax code and to plan accordingly. The Tax Foundation's analysis provides valuable insights into the potential effects of the TCJA's expiration, and it is crucial to consider these implications when making financial decisions.

It is also important to note that the TCJA's expiration is not a certainty, and Congress may take action to extend or make the law's provisions permanent. As the situation develops, it is essential to stay up-to-date with the latest news and analysis from reputable sources, such as the Tax Foundation.

By understanding the potential changes to the 2026 tax brackets, taxpayers and businesses can better prepare for the future and make informed decisions about their financial planning. Whether you are an individual taxpayer or a business owner, it is crucial to stay informed and to seek professional advice to ensure that you are in compliance with the tax code and taking advantage of available tax savings opportunities.