In 2017, Congress passed the Tax Cuts and Jobs Act (TCJA). This legislation reduced taxes for many people and businesses. However, without further legislative action, the tax cuts are set to expire at the end of 2025, and tax rates and tax brackets will be higher for most households in 2026.
Planning ahead for the expiration of the TCJA can increase your financial security. Let’s explore what the expiration of the TCJA might mean for you and what you can do about it.
Who will be most affected by the expiration of the TCJA?
At the end of 2017, former President Donald Trump signed a massive tax bill known as the Tax Cuts and Jobs Act (TCJA). Among other things, it reduced individual, corporate and real estate tax rates.
However, there is a big difference between what will happen to businesses versus households at the end of next year.
Companies
Corporations have been the biggest tax winners with the TCJA. The TCJA (also referred to as the Trump Tax Act) reduced the top business rate from 35% to 21%, always.
Therefore, businesses are not affected by the expiration of the TCJA.
Captivity
Without further legislation, the TCJA household tax cut is scheduled to expire at the end of 2025. Households could see their tax rates return to 2017 levels in 2026. For many people, their tax burden will rise.
According to the Tax Policy Centerthe TCJA reduced individual income taxes for 65 percent of households overall, and raised taxes for about 6 percent of households.
- Bottom income quintile: Only 27% of families in the lowest income quintile received a tax cut (or increased tax refund), with no substantive change in the taxes owed by most families.
- Average income: Taxpayers in the middle income quintile (those with income between about $49,000 and $86,000) received an average tax cut of about $800, or 1.4 percent of after-tax income.
- High income: Taxpayers in the 95th to 99th income brackets (those with income between about $308,000 and $733,000) received the largest benefit with an average tax break of about $11,200, or 3.4 percent of after-tax income.
- Highest income: Taxpayers in the top 1 percent of the income distribution (those with income of more than $733,000) received an average reduction of about $33,000, or 2.2 percent of after-tax income.
What are the differences between the 2025 and 2026 tax brackets?
Taxes are incredibly complex. Scroll to the bottom of this article if you want to compare today’s tax rates with those that will take effect in 2026.
You’ll find 3 charts from the Tax Cuts and Jobs Act Conference Report showing the differences between 2017 taxes (which will become 2026 tax rates) and 2018 taxes, which are currently in use:
- One for high-income people
- And another for middle-income people
- The third is for low-income taxpayers
What is the probability that the TCJA will expire?
There is no way to definitively predict what will happen. Future scenarios depend on elections and complex governmental and economic factors. For example:
- Will one party take power in Washington or will the federal government be divided between Democrats and Republicans?
- What will be on the 2025 legislative agenda?
- Will we enter a recession or will the economy boom again?
Some analysts point to recent history and predict the TCJA will expire due to inertia in government. If a bipartisan agreement is not reached, it allows each political party to point the finger at the other for expiration.
Furthermore, if the economy is suffering, the ability to increase corporate taxes to enable lower taxes on households may not be a viable option. The only thing we know for sure now is that there is no way to know what will happen.
6 Ways to Prepare for the TCJA Expiration
Death and taxes may be inevitable, but the details surrounding either eventuality make a big difference in your life. It’s hard to prepare — even for something certain — when you don’t really know all the details of what might happen in the future.
However, looking at different scenarios is beneficial for your peace of mind and financial solvency. Here are six steps to take to prepare for the possibility of a tax increase in 2026.
1. Know the impact: Plan your taxes for life with or without the tax brackets change for 2026
The impact of the expiration of the TCJA on your lifetime tax burden can be significant. We calculated the difference for the average NewRetirement enrollee, and his or her lifetime federal taxes would be $116,670 higher, assuming the TCJA expires at the end of 2025.
Log in to NewRetirement Planner to evaluate your personal life tax estimates with or without the TCJA expiration:
2. Understand that accurate long-term tax planning helps ensure financial success
Darrow Kirkpatrick Can I retire yet? He concluded that it may be important to accurately forecast taxes as part of your detailed retirement plan. He says: If you made a big mistake [about taxes], you can eliminate your retirement accounts by a significant factor. for me “One retirement number“The article showed that for a typical retired couple, the effective tax rate fluctuated widely—between zero and 23.8%—and there was no single, simple number you could choose to give the correct answer over the entirety of retirement!”
Other estimates suggest that for every 1% error in your effective tax rate, you introduce an 8% error in your final savings balance. It’s important to be able to forecast your taxes for the next 20 or 30 years.
Although it’s not perfect, the NewRetirement Planner at least attempts to calculate a reliable estimate of what you’ll pay in taxes each year, and is continually updated and maintained.
For PlannerPlus subscribers, the system:
- Automatically estimates total federal and state taxable income, deductions, and estimated taxes by year using the latest available tax tables and rates.
- new: You can also now switch between current (lower) tax rates for your lifetime versus current rates through the end of 2025, and jump to higher rates from 2026 for your lifetime after the TCJA expires.
- It allows you to set different income levels throughout retirement to approximate your tax bracket for each year. Additionally, it allows you to determine whether your annuity and/or pension income should be taxed (at both the federal and state levels).
- It automatically estimates how much of your Social Security income will be considered taxable based on the state you live in and your total taxable income by year. It also takes into account employment income penalties, as well as spousal and survivor benefits.
- It lets you determine how much of your savings is in different types of taxable and non-taxable accounts, and automatically calculates the tax liability (or lack thereof) for each account, as well as handling the tax deductibility of contributions. And if you live in a state that doesn’t tax retirement savings withdrawals, NewRetirement Planner supports that, too.
- Estimates require minimum distributions (RMDs) from retirement accounts starting at age 72 — a big lever when it comes to tax liability in retirement.
- Allows you to choose whether investment returns on after-tax savings should be treated as long-term capital gains or ordinary income.
- If you’re considering a Roth conversion, the calculator will estimate the tax hit in the year of the conversion plus interest in the future when you withdraw from the Roth account.
- If you plan to move, the system takes into account your new state tax rates and uses them for the years after your planned move.
3. Maintain scenario as TCJA expires
You may consider maintaining a scenario to model higher tax rates. “What if” scenarios are one of the most popular features of NewRetirement Planner and you can make side-by-side comparisons to help you make better decisions about your finances.
4. Plot future income, staying below thresholds
You may want to plan for ways to stay under certain income limits after 2025 in order to minimize taxes. You can review your expected annual taxes, taxable income, and tax brackets on the Tax Information page.
5. Speed up Roth conversion strategies
It is best to do Roth conversions when taxes are low. (Learn more about doing Roth conversions.) If you think your 2026 federal tax brackets and rates will be higher than they are now, converting more money in the next few years to a Roth may be in your best interest.
You can use the Roth Conversion Explorer in NewRetirement Planner to evaluate the impact of the TCJA expiration on your Roth conversion strategies. For example, we found that the tool might recommend a multi-year strategy for a series of 10 or more conversions at current tax rates for the average NewRetirement participant. However, the shift to the higher tax rates for 2026 after the expiration of the TCJA resulted in a much smaller number of recommended transfers.
About the Roth Conversion Explorer: The Roth Conversion Explorer is designed to identify conversion opportunities that will maximize your long-term net worth (estate value). Try running the tool at current tax rates. Then watch how strategies change when you switch to higher rates for 2026 and beyond.
Try custom Roth strategies: You can also run custom Roth conversion scenarios in Planner (My Plan > Money Flows) with and without TCJA expiration and evaluate your plan metrics, including lifetime tax estimates.
6. Get expert advice
The impact of your financial decisions on taxes (and vice versa) can be complex. Add a change to your tax rates and brackets and your plans can become even more complicated.
If taxes worry you, working with a professional can give you peace of mind. New Retirement Consultants He or she can work with you and provide strategies to help you achieve your goals.
A Certified Financial Planner® is a professional fiduciary. They offer engagements for a fixed fee only based on your needs. If you think you could benefit from specialist financial advice, book a free discovery session today. Book a free discovery session…
Tax rate comparisons
You can browse price comparisons below. However, it may be beneficial for you to use the NewRetirement Planner to evaluate your future tax brackets and know your expected liabilities.
Federal individual income tax rates for high earners (2017/potential 2026 rates vs. 2018/current rates)
Federal individual income tax rates for middle earners (2017/potential 2026 rates vs. 2018/current rates)
Federal individual income tax rates for low-income earners (2017/potential 2026 rates vs. 2018/current rates)
About the new retirement
For people who want clarity about their choices today and their financial security tomorrow, NewRetirement is a financial planning platform that gives people the power to discover, design, and manage personal paths to a secure future. Our goal is to provide high-quality, low-cost financial guidance to everyone. More than 200,000 people representing a wealth of over $200 billion currently trust the system to get the most out of their money and time. The platform can be co-branded or white-labeled for partners.
Additionally, the company provides access to an Application Programming Interface (API) for businesses that want to embed planning functionality within their own site.
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