What Is the Tax Cuts and Jobs Act (TCJA)?

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Signed into law on January 1, 2018 by President Donald Trump, the Tax Cuts and Jobs Act (TCJA) made significant changes to individual and business tax code. It was the first major overhaul of tax code in decades, changing tax deductions, credits, depreciation and expenses for businesses. It also introduced important tax cuts for individuals.

Many of the TCJA’s tax reform benefits for businesses are permanent. However, most of those geared toward individuals are set to expire at the end of 2025. For individuals and families, this could have significant repercussions going forward.

Overview of Key Tax Reform Changes

The TCJA of 2017 brought about major changes to the existing tax code. The overarching goal of the TCJA was to stimulate economic growth and strengthen U.S. businesses.

For individuals, the TCJA lowered the tax rates in several income tax brackets, raised the standard deduction amount, capped state and local tax (SALT) deductions at $10,000 and eliminated miscellaneous tax deductions for employees’ workplace expenses.

For businesses, the TCJA permanently lowered the corporate tax rate to 21%, introduced a 20% tax break from pass-through income for certain business entities (including LLCs and partnerships) and established a 100% bonus deduction for some business assets.

While the TCJA has undoubtedly had a positive impact on individuals and families, many of its provisions uniquely benefit businesses and shareholders, most of whom are high earners. Certain provisions for individuals are also temporary, whereas those for businesses don’t have an expiration date.

Impact on Individuals and Families

The Tax Cuts and Jobs Act impacted both individuals and families, primarily based on their filing status, income level and eligible deductions. For the most part, the TCJA simplified individual income taxes across all income thresholds.

However, unless Congress extends the TCJA, many of these individual tax reforms will expire at the end of 2025. While this might not be a major concern for taxpayers in higher income brackets, it could mean higher taxes for most working Americans in 2026 and beyond.

These are the main changes of the TCJA for individuals and families in the United States:

• Removed health insurance mandate: The Affordable Care Act required individuals to purchase health insurance. The TCJA permanently eliminated this requirement and the penalty that came with not having insurance.
• Lowered income tax rates: The average tax rates for all individual income tax brackets fell slightly. The lowest and highest tax brackets (10% and 35%, respectively) remained unchanged. The others changed as follows: from 39.6% to 37%, 33% to 32%, 28% to 24%, 25% to 22% and 15% to 12%.
• Increased the standard deduction: The TCJA doubled the standard deduction amount. In 2024, the standard deduction for single filers is $14,600, but will increase to $15,000 next year. For married couples filing jointly, the deduction is $29,200 in 2024. It will increase to $30,000 in 2025.
• Suspended the personal exemption: The TCJA repealed the personal exemption, which was $4,150, until the end of 2025.
• Expanded child tax credit: It increased the child tax credit to $2,000. Only those earning $400,000 or less (married couples filing jointly) may qualify for this credit. The law also introduced a nonrefundable tax credit for non-child dependents.
• Student loans reform: Thanks to the TCJA, 529 plans can fund up to $10,000 per year in K-12 private school tuition expenses.
• Increased estate tax exemption: The estate tax exemption increased to $13.6 million in 2024 for single filers. It increased to $13.99 million for the 2025 tax year.
• Increased alternative minimum tax exemption: The TCJA increased the alternative minimum tax (AMT) exemption from $85,700 in 2024 to $88,100 in 2025 for single filers. It also temporarily changed the exemption phaseout threshold.
• Suspended miscellaneous itemized deductions: Until 2026, miscellaneous itemized deductions such as moving expenses and union fees are suspended. Certain expenses, like gambling losses, are still deductible.
• Limited mortgage interest deduction: Married couples filing jointly can deduct mortgage interest on up to $750,000 of debt.
• Capped state and local tax (SALT) deductions: SALT deductions are capped at $10,000 until January 1, 2026.

Impact on Businesses and Corporations

The Tax Cuts and Jobs Act also affected businesses and corporations in many ways, most of which benefit high-income shareholders. Some provisions are permanent, meaning they’ll remain in effect even if the TCJA expires at the end of 2025:

• Lowered corporate tax rate: The TCJA permanently reduced the corporate tax rate from 35% to 21% (flat rate).
• Repealed the corporate alternative minimum tax (AMT): The AMT was meant to ensure higher earners pay a minimum amount of taxes.
• Greater deduction for pass-through income: The TCJA lowered taxes on pass-through income for partnerships, sole proprietorships and S-corporations. Eligible taxpayers can exclude up to 20% of their pass-through business income when filing federal taxes.
• Immediate expensing allowance: Thanks to the tax reform, businesses no longer must wait for their assets to depreciate over time, but can now conduct full immediate expensing. Limitations apply.
• Capped interest rate deduction: For businesses, the maximum net interest deduction is 30% of income before interest and taxes.
• Increased cash accounting limitation: The TCJA allows businesses earning no more than $25 million annually (gross) to do cash accounting. Before the change, this limit was $5 million.
• Changed foreign earnings law: Under the TCJA, eligible U.S. businesses may pay a preferred lower domestic tax rate on foreign earnings.
• Other changes: The TCJA eliminated the Section 199 deduction for domestic production activities and the net operating loss (NOL) carrybacks.

Effects on Deductions and Credits

The Tax Cuts and Jobs Act introduced deductions and credits for individuals and businesses alike. Those that impact individuals include:

• Child tax credit of up to $2,000 per qualifying child in 2024
• Up to $500 as a nonrefundable Credit for Other Dependents (ODC) for taxpayers with qualifying dependents
• Removed personal exemption deduction for individuals, spouses and dependents
• Nearly doubled standard deduction amount for all taxpayers
• Limitations on itemized deductions
• Removed most miscellaneous itemized deductions (including hobby losses, tax preparation fees and job-related educational expenses like training)
• $10,000 limit on the state and local income tax (SALT) deduction
• Taxpayers can deduct depreciation on any section 179 property (e.g., qualified improvement property) the year it’s ready for use (with a maximum deduction of $1 million — up from $500,000)
• Alimony payments are no longer tax deductible
• U.S. military personnel may qualify for certain tax breaks, such as the combat zone tax benefit or moving expenses

Under the TCJA, changes to deductions, depreciation and expensing for businesses include:

• Deduction on qualified business income (pass-through entities)
• Deduction limits on business interest expenses, meals and entertainment expenses
• Changes to net operating loss and excess business loss deductions
• Up to 100% expensing for eligible business assets (temporary change)
• Increased the cap on Section 179 expensing to maximum of $1,220,000
• Limited depreciation deductions for luxury vehicles

Long-Term Impacts and Controversies

Since its inception, the TCJA has had quite a bit of heat from taxpayers and political parties alike. Many people believe the tax law is heavily skewed toward the wealthy.

According to the Tax Policy Center, the top 1% of households will get an average tax break of $60,000 or more in 2025. By comparison, those in the bottom 60% will only get a tax cut of about $500 on average. Those in the top 5% will also see a much higher tax break compared to the bottom 60%.

Back in 2017, the U.S. Treasury released a statement saying the TCJA would boost revenues by $1.8 trillion over a decade. The following year, the Congressional Budget Office estimated the law would cost $1.9 trillion in that time. If the changes to tax code for individuals were to be made permanent, it could cost another $400 billion annually starting in 2027.

Along with this, the first Trump Administration initially claimed the corporate tax rate cut would increase household income by around $4,000, if not more. Some studies, however, have found that those earning $114,000 or less didn’t see a major change in earnings.

It’s also likely that, once individual tax cuts expire, the majority of taxpayers will see their taxes significantly increase. According to the Joint Committee on Taxation, around 22 million U.S. households earning $20,000 to $30,000 annually will pay 26.6% more in 2027 than they would have otherwise. Those making $1 million or more will pay 1% less in taxes.

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