In 2017, President Donald Trump introduced a comprehensive legislation known as the Tax Cuts and Jobs Act (TCJA). This act increased the standard deduction to historically high levels, enhanced the maximum child tax credit, and provided numerous gifting and estate planning benefits. However, many key provisions of the TCJA are set to expire on December 31, 2025 if Congress does not take action to maintain the law unchanged.
Despite this, Trump has expressed his intention to make many of these provisions permanent and introduce new tax reduction measures. Therefore, it is crucial to understand the current tax laws when filing tax returns for 2024.
The standard deduction can help individuals and couples reduce their tax burden or receive a larger tax refund by lowering their taxable income. Essentially, the higher the standard deduction, the more taxpayers benefit.
The Tax Cuts and Jobs Act raised the standard deduction. Here are the applicable standard deduction amounts for 2024 and 2025.
For the 2024 tax year, the standard deduction for single filers is $14,600, and for married couples filing jointly, it is $29,200.
Single filers who are blind or 65 years and older may claim an additional $1,950 deduction. Blind individuals or those 65 and older, whether married filing jointly or separately, can claim an extra $1,550 deduction per person.
For the 2025 tax year, the standard deduction for single filers will be $15,000, and for married couples filing jointly, the limit will be $30,000.
However, if the Tax Cuts and Jobs Act expires, the standard deduction will revert to the pre-act levels. According to data from the Tax Foundation, this would mean a standard deduction of $8,350 for single filers and $16,700 for married couples filing jointly.
The Tax Cuts and Jobs Act increased the maximum child tax credit to $2,000 and expanded the phase-out range for the credit. Additionally, it allows for a non-refundable credit of $500 per other dependent.
If the law expires, the maximum amount of the child tax credit will revert to $1,000.
So, how does the child tax credit work? Firstly, understanding what a tax credit is crucial. A tax credit allows taxpayers to reduce their income tax liability by a set amount. The child tax credit aims to assist low-income families with qualifying children to receive tax relief.
You can claim up to $2,000 per child under 17 for the child tax credit. However, when your Adjusted Gross Income (AGI) exceeds $200,000 (single parents) or $400,000 (married couples filing jointly), the credit will be reduced by 5% of the excess amount.
If the tax credit exceeds the tax owed, you can receive up to $1,600 as a refundable additional child tax credit (ACTC).
Taxpayers can also claim a non-refundable tax credit of up to $500 for other dependents, including full-time college students aged 19 to 24. However, since this credit is non-refundable, if it reduces the amount owed to negative, the credit cannot be received as a refund.
A key component of the Tax Cuts and Jobs Act is its reduction of five of the seven tax rates and adjustment of the rate brackets. According to projections by the Tax Foundation, here are potential changes in these tax rates.
If the Tax Cuts and Jobs Act expires, there will be changes in the tax rate brackets. Here is a more detailed analysis.
Overall, due to the changes caused by the expiration of the Tax Cuts and Jobs Act, some taxpayers may end up paying more in taxes. According to projections by the Tax Foundation, if the TCJA expires, 62% of taxpayers could face increased taxes.
However, with help from a Republican-controlled Congress, Trump theoretically has the capacity to make many key provisions permanent.
The Tax Cuts and Jobs Act opened up significant tax cuts for many Americans. Yet, some crucial provisions of the act are set to expire and will not continue into 2026. Nevertheless, the President has indicated plans to make these provisions permanent. However, this will still depend on Congress’s actions.
April 15 is the deadline for filing tax returns for the 2024 tax year.