By 2025, the face of taxes in the United States will be wholly reworked at both personal and corporate levels. With the expiration of the provisions under TCJA and new proposals from initiatives such as Project 2025, the United States is indeed poised to witness a different face of taxation. For that, the article highlights all the major changes expected in 2025 and their implication for taxpayers.
Expiry of TCJA provisions
The Tax Cuts and Jobs Act passed in December 2017 brought monumental changes to the tax code. Tax rates were altered, standard deductions were raised, and credits were expanded. However, much of this was temporary in the end of 2025, thus posing a rather dramatic shift in the amount of taxes if most Americans will owe.
Individual tax rates
Under the TCJA, the individual federal income tax rates for all brackets were reduced. For example, what was a 15 percent tax rate for single filers dropped to 12 percent, and what was a top rate of 39.6 percent dropped to 37 percent. In 2026, those rates will reset to their pre-2018 levels which basically means your tax liabilities are higher.
- Single filers:
- 12% rate resets to 15%
- 22% rate resets to 25%
- 24% bracket will revert to 28%
- Married filing jointly:
- The same increases will apply, and this tax bracket will hurt.
Standard Deductions and Child Tax Credit
The TCJA almost doubled the standard deduction, too, and this will revert to its prior amounts unless Congress extends it.
Standard Deduction:
- Single will go from $12,550 to $6,350
- Married couples filing jointly will go from $25,100 to 12,700.
Likewise, the enhanced Child Tax Credit, that increased to $2,000, reduces once again to $1,000 in 2026. The effect of this reduction will be massive on families, as it is sure to make them pay more towards taxes.
Corporate tax changes
The corporate rate cut from 35 percent to 21 percent under the TCJA does not sunset and will remain unless and until Congress changes the current law. As a point of comparison, alternatively, proposals under Project 2025 envision it being lowered even more to 18 percent which would further reduce federal revenue and alter corporations’ behavior.
Project 2025: A new tax blueprint
The Heritage Foundation’s program 2025 advocates simplicity in the structure subject taxes, reduction in the number of brackets, and further pushes the system towards taxes on consumption. Some of the prominent reforms required, which includes but are not limited to:
- Simplified tax rates: 15% on lower incomes and 30% on higher incomes with only two brackets. This may, in all seriousness, seriously increase the tax burden on middle-class family budgets and possibly reduce the taxes on wealthier people.
- Elimination of deductions: Many of the existing deductions and credits would be eliminated, making the tax world even more confusing for most Americans.
- Introduction of a national sales tax: The highly controversial proposal could supplant income taxes with a levy on consumption, altering the way Americans pay taxes.
Impact on taxpayers
The changes that are about to occur in 2025 will have far-reaching consequences for taxpayers across the board. Here are some probable results:
- Increased tax burden: Most individuals and families will see a large increase in their tax liabilities as the tax rates revert back, and most credits and deductions are reduced.
- Planning opportunities: Taxpayers may want to consider any planning technique by which they could accelerate income or recognize capital gains in the year 2020 before the law expires. An example is the converting of traditional IRAs to Roth IRAs in a year in which the legislation reverts tax rate changes.
- Impact on investment: the probability of an increase in the capital gains tax rate, offsetting most of the deductions that are urged to be curtailed, will lead to the demoralizing of investment and savings, hence affecting economic growth.
Going into 2025, the taxation landscape in the U.S. will change drastically. Key provisions from the TCJA expire in concert with proposed law changes like Project 2025 that threaten to raise taxes on most Americans. This is something that all taxpayers should know and plan for in advance to try and cushion themselves against the changes in store. The days ahead in this changing tax environment will indeed be taxing and require engagement with tax professionals and appropriate planning.
