2026 Federal Tax Changes: What You Need to Know

By: Kevin Gehrmann

Partner, Tax

2026 Federal Tax laws are heading for uncertainty as many key provisions from the Tax Cuts and Jobs Act (TCJA) approach their expiration at the end of 2025. Since the TCJA came into effect in 2018, it has reshaped both individual and corporate tax landscapes. However, without congressional intervention, taxpayers will see many tax provisions revert back to pre-2018 tax regulations. Understanding these potential changes are essential for financial planning.

Possible Shifts for Individual Taxpayers

Many of the TCJA’s individual tax provisions hold expiration dates at the close of 2025, signaling substantial changes to incomes, deductions, and credits. Here are some areas most likely to affect individuals:

Income Tax Rates  

The lower 2026 federal tax brackets under the TCJA—ranging from 10% to 37%— will revert to their pre-2018 counterparts, which top out at 39.6%. These higher rates may result in increased tax liabilities for nearly all taxpayers.

Standard Deduction and Personal Exemptions  

The doubled standard deduction amounts of $27,700 for married couples filing jointly, $13,850 for single filers, and $20,800 for heads of household (as of 2024) will revert to the much lower pre-TCJA levels of $12,700 for married filers and $6,350 for individuals. Personal exemptions of $4,050 per filer or dependent eliminated under the TCJA are set to return.

Child Tax Credit  

The current tax credit of $2,000 per qualifying child is slated to drop to $1,000, with stricter income phaseout thresholds making it harder for many families to qualify.

Itemized Deductions  

Several deductions eliminated or reduced under the TCJA will return, including miscellaneous itemized deductions above 2% of adjusted gross income (AGI). The notorious Pease limitation on itemized deductions will also resurface, reducing deductions by 3% of AGI above certain thresholds. On the bright side, the $10,000 cap on state and local taxes (SALT) is set to expire, restoring the full deductibility of these payments.

Alternative Minimum Tax (AMT)  

The AMT—largely sidelined for individuals during the TCJA era—will bounce back, potentially impacting a wider swath of taxpayers due to lower exemption thresholds and the return of deductions like SALT.

Estate and Gift Taxes  

The estate and gift tax exemption, which ballooned to nearly $14 million per individual by 2025, will revert to approximately $7 million beginning in 2026. While the “anti-clawback” rule ensures previously applied exemptions won’t be taxed retroactively, larger estates face heightened tax exposure in the years ahead.

Generation-Skipping Transfer Tax Exemption

Likewise, the separate generation-skipping transfer tax exemption that applies to amounts that skip a generation has been indexed for 2025 to $13,990,000 per individual and will revert to approximately $7,000,000 on January 1, 2026.

Implications for Business Taxpayers

The expiration of TCJA provisions also places businesses in a precarious position, with key changes set to affect profitability and tax planning strategies:

Section 199A Deduction for Pass-Through Entities  

Sole proprietors, partnerships, LLCs, and S corporations have benefited from a 20% deduction on Qualified Business Income (QBI) since the TCJA, effectively lowering their top income tax rates. This deduction is scheduled to sunset in 2026 unless extended.

Bonus Depreciation

The ability to write off 100% of certain capital investments will phase out gradually, falling to 50% in 2025, 20% in 2026, and disappearing entirely in 2027. For businesses depending on significant infrastructure investment, this phaseout could reduce cash flow and curb reinvestment opportunities.

Business Interest Expense Deduction  

Under the TCJA, businesses have faced stricter limits on deducting interest expenses. These restrictions, currently set at 30% of adjusted taxable income, will tighten further by reverting to pre-2018 rules.

International Tax Revisions  

The highly technical provisions governing Global Intangible Low-Taxed Income (GILTI) and Foreign-Derived Intangible Income (FDII) will see less favorable deductions in 2026. GILTI’s effective tax rate may rise from 10.5% to 13.125%, and FDII could see increases to approximately 16.4%.

Congress Faces Big Decisions

Congress faces a critical juncture in determining the future of these provisions. It essentially has three options:

1. Do Nothing – This would allow the TCJA provisions to expire, fully restoring pre-2018 tax rules.  
2. Extend or Make Permanent the TCJA Provisions – Legislation could preserve, either temporarily or permanently, the tax cuts and deductions, although the Congressional Budget Office estimates this could cost $5 trillion from 2025 to 2034.  
3. Introduce New Legislation – Congress could attempt to reform the tax code entirely, creating a new framework that may differ from both current and pre-TCJA laws. 
   

Navigating the Road Ahead

The potential 2026 federal tax changes on the horizon underscore the importance of a well-thought-out strategy to safeguard your financial future. Navigating these complexities requires awareness and expert advice tailored to your unique circumstances.

At Wiss, our team of knowledgeable tax professionals are here to guide you through these potential changes and help you plan with confidence. Whether you’re an individual or a business owner, we can provide the insights and solutions you need to make informed decisions.

Don’t wait—contact Wiss today to discuss how these developments could impact your financial outlook. Together, we’ll create a plan that keeps you ahead, no matter what changes come your way.

PreviousNext