- Individual tax rates reverted to pre-2017 levels — top rate 39.6% (up from 37%) effective January 1, 2026.
- Standard deduction dropped approximately 50% — more taxpayers should now itemize deductions.
- §199A 20% pass-through deduction for small business owners expired — significant tax increase for LLCs, S-corps, and sole proprietors.
- Federal estate tax exemption dropped from ~$13.99M to ~$7M per person — urgent planning needed for larger estates.
- AMT exemptions reverted — more upper-middle-income taxpayers owe AMT in 2026.
- Child tax credit dropped from $2,000 to $1,000 per qualifying child.
- Congress is debating extension — but no guarantee; plan for the new rates now.
1. What Is the TCJA Sunset?
The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, was one of the most significant overhauls of the US tax code in decades. It dramatically lowered individual income tax rates, nearly doubled the standard deduction, created a new 20% deduction for pass-through business income (§199A), doubled the estate and gift tax exemption, and dramatically scaled back the alternative minimum tax.
The catch: most individual provisions were temporary. They were written to expire — or "sunset" — on December 31, 2025, to comply with Senate budget reconciliation rules that limit the cost of legislation over a 10-year window. The corporate provisions (including the 21% flat corporate rate) were made permanent and remain in effect.
When December 31, 2025 arrived without a congressional extension, the individual provisions of the TCJA expired as scheduled. Effective January 1, 2026, the tax code largely reverted to pre-TCJA 2017 law — with inflation adjustments.
The TCJA sunset is not a future event — it already happened on January 1, 2026. Your 2026 taxes are already subject to the new (higher) rates and lower deductions. If you haven't adjusted your withholding (Form W-4) or estimated tax payments for 2026, you may face a significant tax bill and underpayment penalties.
2. Individual Tax Rate Changes in 2026
The most immediately felt change is the increase in individual income tax rates. The TCJA created seven brackets with a top rate of 37%. After the sunset, the pre-TCJA seven-bracket structure with a top rate of 39.6% is back.
| 2025 Rate (TCJA) | 2026 Rate (Post-Sunset) | Change |
|---|---|---|
| 10% | 10% | No change |
| 12% | 15% | +3 pts |
| 22% | 25% | +3 pts |
| 24% | 28% | +4 pts |
| 32% | 33% | +1 pt |
| 35% | 35% | No change |
| 37% | 39.6% | +2.6 pts |
The bracket thresholds also changed. For a married couple filing jointly in 2026, the 39.6% bracket kicks in at approximately $600,000 (compared to higher thresholds under TCJA). The 28% bracket — which didn't exist under TCJA — applies to a range of income that was previously taxed at 24%.
The marriage penalty was also partially restored. The TCJA had structured brackets to be more favorable for married couples — the post-sunset structure is less favorable for many dual-income households.
For employees: update your Form W-4 with your employer immediately to reflect higher 2026 withholding. For self-employed individuals and business owners: recalculate your 2026 quarterly estimated tax payments (April 15, June 16, September 15, January 15) based on the new rates.
3. Standard Deduction — Dropped Nearly 50%
The TCJA nearly doubled the standard deduction — from approximately $6,500 (single) and $13,000 (married) in 2017 to approximately $15,000 (single) and $30,000 (married) in 2025. This single change caused roughly 90% of taxpayers to take the standard deduction rather than itemize, making many deductions effectively worthless for most people.
When the TCJA expired, the standard deduction reverted to pre-TCJA levels, adjusted for inflation. The 2026 standard deduction is approximately:
| Filing Status | 2025 Standard Deduction (TCJA) | 2026 (Post-Sunset est.) | Reduction |
|---|---|---|---|
| Single | ~$15,000 | ~$8,300 | –$6,700 (–45%) |
| Married Filing Jointly | ~$30,000 | ~$16,600 | –$13,400 (–45%) |
| Head of Household | ~$22,500 | ~$12,200 | –$10,300 (–46%) |
This change has two significant consequences. First, far more taxpayers should now itemize in 2026 than in 2025. If your deductible expenses (mortgage interest, state and local taxes up to $10,000, charitable contributions, medical expenses over 7.5% of AGI) exceed your new standard deduction, itemizing is the better choice.
Second, deductions that were essentially irrelevant for most taxpayers during TCJA years — because the standard deduction was so high — are newly valuable again. Mortgage interest, property taxes, and charitable contributions are worth reclaiming on your 2026 return.
Action Item: Calculate your expected 2026 itemized deductions now. If they exceed your new standard deduction (~$8,300 single / ~$16,600 MFJ), you should itemize on your 2026 return. Many taxpayers who automatically took the standard deduction for 2018–2025 will benefit from itemizing in 2026.
4. §199A Pass-Through Deduction: Gone for Business Owners
For small business owners and self-employed individuals, the expiration of the §199A Qualified Business Income (QBI) deduction may be the single most significant TCJA sunset impact. §199A allowed owners of pass-through entities — sole proprietorships, partnerships, S-corporations, and LLCs taxed as any of these — to deduct 20% of their qualified business income from federal income tax.
For a pass-through business owner in the 37% bracket (now 39.6%), §199A provided a deduction worth approximately 7.4 percentage points of effective tax rate. A business owner earning $500,000 in QBI saved approximately $37,000 per year in federal taxes under §199A. That deduction is gone in 2026. The combined impact of higher rates AND loss of §199A means many pass-through business owners face a 10+ percentage point increase in effective federal tax rate in 2026.
What should business owners do? The analysis has changed significantly:
- Entity structure review: Without §199A, the pre-tax advantage of pass-throughs over C-corporations is reduced. For many business owners, the C-corporation 21% flat rate is now more favorable than pass-through taxation at rates up to 39.6% without a QBI deduction. A tax attorney can run the full comparison for your specific situation.
- Retirement plan maximization: Higher tax rates increase the value of pre-tax retirement contributions. Maximize SEP-IRA, SIMPLE IRA, or Solo 401(k) contributions to reduce taxable income.
- Income timing: If Congress ultimately extends §199A (which remains uncertain), there may be value in deferring income into future years. However, planning based on uncertain legislative outcomes is risky — consult a tax attorney before making major timing decisions.
- Installment sales: For business owners considering selling their business, installment sale treatment spreads gain recognition over multiple years, potentially keeping income in lower brackets.
TCJA Sunset Affects Your Business or Estate?
A tax attorney can review your specific situation, run entity structure comparisons, update your estate plan, and ensure you're not over-paying in the new 2026 tax environment. Free consultation.