A major tax hike is scheduled to hit middle-class families on January 1, 2026. The tax cuts that have saved you thousands since 2017 are set to expire, and the clock is ticking. This is not speculation; it is written into law.
The year 2025 is your last opportunity to take advantage of lower tax rates and bigger deductions before they disappear. This guide provides a clear, actionable plan to help you lock in savings now.
By understanding the changes, you can protect your family’s finances from the coming tax increase.
The 2025 Tax Cliff: Your Last Chance to Use the Biggest Tax Cut in a Generation
The “Tax Sale” is Ending: 2025 vs. 2026
See how key tax benefits are set to change after 2025.
Standard Deduction
Child Tax Credit
Top Tax Bracket
On December 31, 2025, a bunch of big tax breaks that have saved the average family thousands of dollars will disappear. This is really happening. It’s a “tax cliff” written into the law, and 2025 is your last chance to use these tax cuts.
When you hear “loophole,” you might think of a secret trick for the rich. But here, it just means the special mix of lower tax rates. A huge standard deduction, and a big Child Tax Credit we’ve had since 2017. Think of it like a temporary “tax sale” for millions of families. That sale is about to end.
This guide will show you exactly what’s changing, how it will affect your money. And what you can do in 2025 to save as much as possible before these tax breaks are gone. These changes will hit almost everyone, but if you know how the law works. You can make smart moves to soften the blow of higher taxes.
What Is the “TCJA Sunset” and Why Is It Happening?
The Great Tax Divide: What’s Changing in 2026?
For Corporations
Major tax cuts were made
PERMANENT
For Individuals & Families
Most tax cuts are
TEMPORARY
(Expire Dec. 31, 2025)
The Tax Cuts and Jobs Act (TCJA) of 2017 was a massive change to the U.S. tax system. It changed taxes for companies, individuals, and families. But there was a catch. To follow budget rules, most of the tax cuts for companies were made permanent, but the tax cuts for people and families were temporary. They were given an expiration date: December 31, 2025.
Extending these tax cuts would be very expensive for the government, costing between $4.0 trillion and $4.6 trillion over the next ten years. Because of the high cost, it’s not clear if Congress will extend all the tax breaks. The smart thing to do is to plan for them to expire as scheduled.
If Congress doesn’t act, the tax code will flip back to the old rules on January 1, 2026. This means a tax increase for about 62% of U.S. households. For middle-income families, this means bigger tax bills, smaller tax credits for kids, and a more difficult time filing taxes.
The Five Big Tax Breaks That Are Disappearing
The TCJA made taxes simpler for many people. When it expires, it’s not just one tax break going away—it’s the whole system. This will make filing taxes harder again.
1. You’ll Pay Higher Tax Rates
The TCJA lowered the tax rates for most people. For example, the 15% and 25% tax brackets were lowered to 12% and 22%. In 2026. These rates will jump back up. This means you’ll pay more in taxes even if your income stays the same.
2. Your Standard Deduction Gets Cut in Half
The biggest change for most families was that the standard deduction almost doubled. For 2025, it’s expected to be $30,000 for married couples. This made filing taxes much easier because most people didn’t need to itemize deductions. After 2025, the standard deduction will be cut almost in half.
3. The Child Tax Credit Shrinks
The TCJA doubled the Child Tax Credit from $1,000 to $2,000 for each child. It also lets more families get the full credit by raising the income limit to $400,000 for married couples. In 2026, the credit will drop back to $1,000 per child. The income limit will also fall to $110,000 for married couples, so many families who get the credit now won’t get it anymore.
4. Personal Exemptions Are Coming Back
To pay for the bigger standard deduction, the TCJA got rid of the personal exemption. This was a deduction you could take for yourself, your spouse, and each of your kids. In 2026, this exemption is set to return and will be worth about $5,300 per person. This sounds good, but it’s usually not enough to make up for losing the huge standard deduction.
5. The 20% Small Business Deduction Is Gone
If you freelance, have a side gig, or own a small business, the TCJA gave you a great new tax break: a 20% deduction on your business income. This is called the Qualified Business Income (QBI) deduction. This important deduction will be completely gone after 2025. This will raise taxes for millions of self-employed people.
The old system was simple: take the big standard deduction, and you were done. The new system will be messy. The standard deduction gets smaller, personal exemptions come back, and limits on other deductions go away. You’ll have to do the math every year to figure out if you should itemize. It means higher taxes and more paperwork for families who have had it easy for the last eight years.
The Bottom Line: How Much Your 2026 Tax Bill Will Go Up
The New Math: How to Figure Out Your Tax Bill
Let’s move from tax rules to what this means for your wallet. Most families will see a big tax increase. It’s a mix of things happening at once: you’ll pay higher tax rates on your income. You’ll have a smaller standard deduction, and your tax credits will be worth less.
The Tax Policy Center did the math. For a family in the middle-income group (making between $65,100 and $116,400). The average tax increase in 2026 will be $1,030. If you make more, you’ll pay more. For those in the next group (up to $212,300), the average tax increase is $1,930. For example, a married couple with a taxable income of $150,000 could see their federal tax bill go up by about $3,928.50. That’s a big hit to your family’s budget.
2025 vs. 2026: A Look at a Family’s Taxes
To make this crystal clear, here’s a side-by-side look for a typical family: a married couple with two kids and a $150,000 income. This shows how all the changes work together to raise their taxes.
| Tax Item | 2025 (Old Rules) | 2026 (New Rules) | The Change |
| Filing Status | Married Filing Jointly | Married Filing Jointly | N/A |
| Gross Income | $150,000 | $150,000 | N/A |
| Standard Deduction | $30,000 | ~$16,525 (est.) | -$13,475 |
| Personal Exemptions | $0 | ~$21,200 (4 x $5,300 est.) | +$21,200 |
| Taxable Income | $120,000 | $112,275 | -$7,725 |
| Tax Calculation | Based on 2025 Brackets | Based on Old Brackets | Higher Tax Rates |
| Initial Tax | ~$14,879 | ~$16,076 | +$1,197 |
| Child Tax Credit | $4,000 (2 x $2,000) | $0 (Income is too high) | -$4,000 |
| Final Estimated Tax | $10,879 | $16,076 | +$5,197 |
As you can see, even though personal exemptions lower the family’s taxable income a bit, it’s not enough. The higher tax rates and losing the Child Tax Credit completely wipe out that benefit. The result is a tax increase of over $5,000 for this family.
Real-World Examples: How This Affects You
Here are three examples to show how these changes will hit different people.
The Salaried Couple with Kids
Let’s look at the family from the table. Their tax increase comes from losing the Child Tax Credit. With a $150,000 income, they easily get the full $4,000 credit now because the income limit is $400,000. But in 2026, the limit for married couples drops to just $110,000. Since their income is over that new limit, their credit is gone. This one change causes most of their tax increase and will be a big shock for many families.
The Small Business Owner or Freelancer
In 2025, they can use the 20% Qualified Business Income (QBI) deduction. This lets them subtract $18,000 ($90,000 x 20%) from their income, which lowers their tax bill a lot. On January 1, 2026, that deduction is gone. Their taxable income will jump by $18,000, not because they made more money, but because a huge deduction disappeared. They’ll pay taxes on that extra income at the new, higher rates. This will mean a tax increase of several thousand dollars.
The Single Renter in a High-Tax State
Think about a single person in a state like California who makes $80,000 a year. In 2025, they’ll use the big $15,000 standard deduction because it’s more than what they could itemize. In 2026, things get tricky. The standard deduction for a single person drops to about $8,300. The $10,000 cap on deducting state and local taxes (SALT) goes away, but their state taxes might only be $8,000. In this case, they have to itemize, but their total deduction is smaller than the standard deduction they got in 2025. This shows how even a good change, like removing the SALT cap, can end up costing you money when the whole tax system changes.
Itemizing Is Back (and It’s Complicated)
For the first time in years, millions of families will have to deal with itemizing deductions again. This is because the standard deduction is shrinking and the $10,000 SALT cap is going away. This seems like great news if you own a home or live in a high-tax state. But it’s not that simple because of something called the Alternative Minimum Tax (AMT).
The TCJA made it so very few people had to pay the AMT. But those easier rules are also expiring. For a married couple, the amount of income you can have before the AMT kicks in will drop from about $140,300 to around $110,075 in 2026.
State and local taxes are a big reason people have to pay the AMT. So, you might be happy that the SALT cap is gone and you can deduct your full $30,000 in state taxes. But doing that could push your income into the AMT zone. The AMT system would then take away your SALT deduction, and you’d have to pay the higher tax. So, just because you have high state taxes doesn’t mean you’ll get a big tax cut in 2026. You’ll have to do a lot more math.
Your 2025 Action Plan: 5 Moves to Make Before December 31st
The tax changes coming in 2026 are big, but they’re not here yet. You have all of 2025 to make smart money moves that can save you a lot of money. Here are five things you should think about doing before the end of the year.
1. Get Paid in 2025 to Lock In Lower Tax Rates
The idea here is simple: pay taxes on your money now while the tax rates are low, instead of next year when the rates go up. This works best if you think you’ll be in a higher tax bracket in 2026 and you have some control over when you get paid.
What to do:
- Year-End Bonuses: If you’re getting a bonus that might be paid in early 2026, ask your boss if you can get it in December 2025 instead.
- Consultants and Freelancers: If you’re self-employed, try to finish your work, send your bills, and get paid before the end of 2025.
- Stock Options: If you have stock options from your job, you might want to use them in 2025 to lock in the income at today’s lower tax rates.
- Capital Gains: If you have investments that have gone up in value, think about selling them in 2025. Even though capital gains tax rates aren’t changing, having a higher income in 2026 could push you into a higher capital gains bracket.
2. Make a “Last Call” Roth Conversion
A Roth conversion is when you move money from a regular IRA or 401(k) to a Roth IRA. You have to pay income tax on the money you move in the year you move it. But after that, all the money you take out in retirement, including all the growth, is tax-free.
The year 2025 is a great time to do this because you’ll pay taxes on the conversion at the lower rates. If you wait until 2026, when tax rates are higher, it will cost you more to convert the same amount of money.
What to do:
- See if it’s right for you: This is usually a good idea if you think your tax rate will be the same or higher in retirement, and you have money saved outside of your retirement accounts to pay the taxes.
- Look at an example: If you move $50,000 from a regular IRA to a Roth IRA in 2025 in the 22% tax bracket, you’ll pay $11,000 in federal taxes. If you wait until 2026 and you’re in the 25% bracket, the same move will cost you $12,500 in taxes. That’s an extra $1,500 just for waiting a few weeks.
- Talk to a pro: A big conversion can have other effects, like making your Medicare premiums go up. It’s a good idea to talk to a financial advisor or tax expert to see how it will affect you before you do it.
3. “Bunch” Your Deductions to Get a Bigger Break
“Bunching” is when you squeeze multiple years of deductions into one year. The goal is to have enough deductions to be able to itemize in that one year. And then take the standard deduction in the other years.
In 2025, the standard deduction is so high ($30,000 for married couples) that it’s hard for most people to itemize. But in 2026, the standard deduction is expected to drop to around $16,525, which makes it much easier to itemize. The smart move is to shift your deductions around to get the most out of them.
What to do:
- Charity Donations: Instead of giving to charity every year, you could give both your 2025 and 2026 donations in 2026. This will boost your itemized deductions in the year when the standard deduction is lower and your deductions are worth more.
- Donor-Advised Funds (DAFs): If you want to get a tax deduction in 2025, a DAF is a great tool. You can put two or three years’ worth of charity donations into a DAF before the end of 2025. You get one big deduction in 2025, which might be enough to let you itemize. Then you can give the money to your favorite charities over the next few years.
- Medical Bills: You can only deduct medical bills that are more than 7.5% of your income. If you have any big medical or dental work you can schedule, try to do it all in one year (either late 2025 or early 2026). This will help you get over that 7.5% limit.
4. Use the 20% QBI Deduction One Last Time
The Qualified Business Income (QBI) deduction lets owners of many small businesses deduct up to 20% of their business income. It’s going away completely after 2025. This is the last year to use this great tax break. This applies to anyone who is self-employed, including freelancers, contractors, and small business owners.
What to do:
- Get the most out of it in 2025: If you can, try to get more business income in 2025 and push your business expenses to 2026. This will make your business income higher in 2025, which means you can deduct more with the final 20% deduction.
- Check the rules: For business owners with higher incomes, there are some limits on the QBI deduction. It’s a good idea to talk to a CPA in 2025 to see if there are any last-minute moves you can make, like changing your salary or buying equipment, to get the biggest deduction possible before it’s gone for good.
5. Do a Quick W-4 Check-Up
Your W-4 is the form you give your employer that tells them how much tax to take out of your paycheck. With a big tax increase coming in 2026, the amount that’s right for 2025 probably won’t be enough for next year. This could leave you with a big, surprise tax bill.
What to do:
- Get it right for 2025: Use the IRS Tax Withholding Estimator tool in 2025 to make sure you’re having the right amount of tax taken out. Since 2025 is the last year of lower tax rates, you don’t want to have too much taken out. A big tax refund is like giving the government a loan with no interest.
- Get ready for 2026: Put a reminder on your calendar for January 2026 to use the IRS tool again and give your employer a new W-4. This will make sure you’re having enough tax taken out to cover the new, higher rates. If you don’t, you could get a nasty surprise when you file your taxes in 2027.
After the Cliff: How to Get Ready for the New Taxes in 2026
Your New Budget: Plan for Higher Taxes
The most important thing to know is that your old budget won’t work anymore in 2026. The tax changes are not a one-time thing. They are a permanent change that will leave most middle-class families with less money to spend.
Starting in 2026, you should plan for a smaller paycheck. You might need to look at your monthly spending, how much you’re saving for things like retirement and college. And when you plan to make big purchases. If you had an extra $400 a month because of the tax cuts, you’d need to find that money somewhere else in your budget. If you ignore this, you could run out of money or have to take on debt.
Why You Might Need a Tax Pro
The tax system was pretty simple for the last few years. That’s ending. The old rules are coming back, and they’re a lot harder to deal with. Deciding whether to itemize, figuring out the AMT. And planning around new income limits for tax credits will make getting professional tax help more important than ever.
Tax software can do the math, but it can’t give you the advice you need to handle a changing tax system. It’s a good idea for families, especially those with kids, a small business, or a lot of assets. To meet with a Certified Public Accountant (CPA) or a Certified Financial Planner (CFP®) in late 2025 or early 2026. They can help you make a personal financial and tax plan for the new rules.
Resources to Help You Plan
Here are some good, free tools to help you with your financial planning.
Tax Calculators:
- IRS Tax Withholding Estimator: This is the official tool from the IRS. It’s the best way to figure out how much tax should be taken out of your paycheck.
- TurboTax TaxCaster / TaxAct Calculator: These are easy-to-use online tools that can give you a quick idea of your tax refund or how much you might owe.
- Policy Simulators: If you want to get more advanced, tools from the Tax Policy Center and Yale’s Budget Lab can show you how different tax law changes might affect you.
Official Information:
- IRS.gov: This is the official place to get tax forms and information about tax laws.
- Congressional Budget Office (CBO): This office gives unbiased reports on how tax laws will affect the country’s budget.
- Joint Committee on Taxation (JCT): This is a non-partisan group in Congress that gives the official cost estimates for all tax laws.