You've probably heard the rumors. People are whispering in coffee shops and frantically texting their accountants about a "tax cliff" or a massive hike coming for the middle class. Honestly, the noise around when the Trump tax cuts expire is deafening, and a lot of it is just plain wrong.
Back in 2017, the Tax Cuts and Jobs Act (TCJA) fundamentally changed how Americans pay the IRS. It wasn't just a minor tweak; it was a total overhaul. But here’s the kicker: while the corporate tax cuts were mostly permanent, the ones for you and me—the individual rates, the standard deduction, the child tax credit—were given a "sunset" date of December 31, 2025.
Basically, if Congress had done nothing, we would have woken up on January 1, 2026, to a much uglier tax bill. But things changed in mid-2025 with the passage of the One Big Beautiful Bill Act (OBBBA).
The 2025 Save: What Actually Happened
If you were bracing for your tax bracket to jump from 12% back to 15%, or 22% back to 25%, you can breathe a little easier. The OBBBA basically took the core parts of the TCJA that everyone liked and made them permanent. Mostly.
The seven-bracket system we’ve grown used to—10%, 12%, 22%, 24%, 32%, 35%, and 37%—is now the law of the land for the foreseeable future. Without that intervention, that top rate would have snapped back to 39.6%.
But don't go celebrating just yet. While the brackets stayed, the "math" behind your taxable income is shifting in ways that might still bite you.
The Standard Deduction Shuffle
For 2026, the standard deduction is actually going up slightly due to inflation adjustments.
- Single filers: $16,100
- Married filing jointly: $32,200
- Head of household: $24,150
That sounds like good news, right? It is, but there's a trade-off. The personal exemption, which was that $4,050 deduction per person we used to get before 2018, is gone for good. The OBBBA permanently eliminated it. So while the standard deduction is high, you no longer get that extra "per-person" discount for your kids or yourself.
The SALT Cap Drama (and the $40,000 Surprise)
If you live in a high-tax state like New York, California, or New Jersey, you probably hated the $10,000 cap on State and Local Tax (SALT) deductions. It felt like a penalty for living in a blue state.
Well, the 2025 legislation actually threw a bone to these taxpayers—temporarily. For the 2025 through 2028 tax years, the SALT deduction cap has been raised to $40,000 for married couples filing jointly.
It’s a huge win for the upper-middle class in expensive suburbs. However, there’s a catch (there's always a catch). If your Modified Adjusted Gross Income (MAGI) hits $500,000, that benefit starts to disappear. By the time you’re making $600,000, you’re right back at that $10,000 limit.
And after 2030? The cap is scheduled to revert to $10,000 for everyone regardless of income. It’s a classic "kick the can down the road" move.
Families, Kids, and the $2,200 Credit
Families were some of the biggest winners in the 2017 bill because the Child Tax Credit (CTC) doubled from $1,000 to $2,000. Under the new 2025 rules, that credit is now **$2,200 per child**.
Even better, the income thresholds to qualify stay high. You don’t start losing the credit until you're making over $200,000 (single) or $400,000 (joint). This is a massive deal because, under the old pre-Trump rules, those thresholds were way lower—$75,000 and $110,000 respectively.
The "Senior Bonus" No One Is Talking About
This is a weird one that caught people off guard. The OBBBA introduced a new "bonus" deduction for taxpayers aged 65 and older. It’s an extra $6,000 per person.
If you and your spouse are both over 65 and filing jointly, your total standard deduction for 2025 could hit $43,500.
But wait. Like the SALT changes, this has a "wealthy person" filter. If you're a single senior making over $75,000, that $6,000 bonus starts to evaporate at a 6% rate. It’s clearly designed to help retirees on a fixed income rather than those with fat pensions or huge RMDs from their IRAs.
Business Owners: The 199A Deduction Lives
Small business owners and freelancers were terrified about the "Section 199A" deduction. This is the one that lets you lop 20% off your "qualified business income" (QBI) before you even start calculating taxes.
The 2025 law made this permanent. If you’re a sole proprietor or have an S-corp, this is probably the single most important piece of news for your bottom line.
However, the "guardrails" are still there. If you’re in a "Specified Service Trade or Business" (think lawyers, doctors, consultants), the deduction still phases out once your income climbs too high. For 2024, that phase-out started around $191,950 for singles. For 2026, those numbers will be indexed up, but the principle remains: if you're a high-earning professional, the IRS still wants its full cut.
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The Hidden Costs: What We Lost
It’s not all sunshine and tax breaks. To pay for these extensions, some things had to go.
- Green Energy Credits: A lot of the Inflation Reduction Act subsidies for electric vehicles and home energy efficiency (like heat pumps) were gutted. Most of these won't be available for property placed in service after December 31, 2025.
- The "Tips and Overtime" Trade: There’s a new deduction for tips and overtime pay, but it comes with strings. It’s only for specific industries the IRS identifies as "customary" for tipping.
- The Deficit: Let's be real—extending these cuts is expensive. The CBO estimates this will add roughly $4 trillion to the national debt over the next decade.
Real-World Impact: Two Examples
Let's look at how this actually hits a wallet.
Example A: The "Average" Suburban Family
Meet the Millers. They make $120,000 combined and have two kids.
Under the old pre-2017 rules, they’d be in the 25% bracket. Under the OBBBA/TCJA extension, they’re in the 22% bracket. Their standard deduction is $32,200, and they get $4,400 in child tax credits. They are significantly better off than they would have been if the cuts had expired.
Example B: The High-Earner in a High-Tax State
Meet Sarah. She’s a single tech lead in San Francisco making $250,000.
She used to get hammered by the $10,000 SALT cap. Now, she can deduct up to $20,000 of her state taxes (since she's single, her cap is half the $40,000 joint limit). However, because she's in the 35% bracket, her itemized deductions are limited to "35 cents on the dollar" in terms of actual tax benefit. She's saving money, but it's not a windfall.
Your 2026 Tax Strategy
Since we now know the Trump tax cuts expire drama was largely mitigated by the 2025 legislation, your strategy shouldn't be about "hiding from a hike," but rather optimizing for the new permanent rules.
Actionable Steps to Take Now:
- Audit Your Withholding: With the new $2,200 Child Tax Credit and the "Senior Bonus," your current W-4 might be taking too much out. Check the IRS withholding estimator to keep more of your paycheck every month.
- Re-evaluate Itemizing: With the SALT cap raised to $40,000 (for some), it might actually make sense to itemize again if you have a big mortgage and high state taxes. Don't just default to the standard deduction.
- Max Out 401(k)s and IRAs: Since the lower tax brackets are here to stay, using "Traditional" (pre-tax) retirement accounts is still a great way to stay in a lower bracket. If you're right on the edge of the 24% and 32% jump, those contributions are your best friend.
- Watch the Phase-outs: If you're a senior or a high-earner, keep a close eye on your MAGI. Crossing a threshold by even $1,000 could cost you thousands in lost deductions or credits due to the "cliff" nature of these phase-outs.
- Business Owners, Document Everything: Since the 20% QBI deduction is permanent, keeping clean books for your "Qualified Business Income" is more important than ever. The IRS is expected to increase audits on pass-through entities to ensure people aren't misclassifying personal income as business income.
The "Tax Cliff" was averted, but the tax code is more complex than ever. The key isn't fearing the expiration; it's understanding the new permanent landscape.
Next Steps for Your Finances
To make sure you're fully prepared for the 2026 filing season, you should gather your 2024 and 2025 returns and compare your "Effective Tax Rate" against the new projected brackets. If you're a business owner, now is the time to meet with a CPA to ensure your entity structure (LLC vs S-Corp) is still the most tax-efficient under the permanent 199A rules.