(NewsNation) — The Tax Cuts and Jobs Act could expire at the end of 2025 if lawmakers don’t extend the legislation, and a majority of taxpayers could pay the price.
“Without congressional action, 62 percent of filers could soon face a tax increase relative to current policy in 2026,” according to the Tax Foundation, a nonpartisan tax policy nonprofit. “At the same time, the price tag for extending the 2017 Trump tax cuts is in the trillions.”
Congress passed the legislation, a tax reform law that reduced rates across income brackets, in 2017 during President Donald Trump’s first term.
Which tax cuts are on the chopping block if the legislation isn’t renewed by Dec. 31?
Which tax cuts could expire in 2025?
Qualified Business Income deductions
Also called the Section 199A deduction, the provision allows many owners of sole proprietorships, partnerships, S corporations and some trusts and estates to deduct up to 20% of their qualified business income, according to the Internal Revenue Service.
The QBI deduction applies to tax years from Dec. 31, 2017, through Dec. 31, 2025.
It also allows eligible taxpayers to deduct 20% of qualified real estate investment trust dividends and publicly traded partnership income.
This does not apply to income earned through C corporations.
The tax break primarily benefits the real estate and manufacturing industries.
Republicans claim the deduction reduces tax burdens for small and mid-sized businesses.
Business expense deductions
The bonus depreciation, research and development, and business interest deductions could expire.
The first allows a business taxpayer to deduct certain capital investments and will be phased out by 2027, according to Bloomberg Government.
The research and development credit was increased under the Tax Cuts and Jobs Act, allowing applicable businesses to deduct more on their tax returns. Its future is uncertain.
Business interest is the cost of interest on a business loan. The deduction “will revert to pre-TCJA rules,” according to Bloomberg Government.
International taxes
An international tax agreement called Pillar 2 applies a 15% minimum tax rate for multinational enterprises with an annual revenue of 750 million Euros, or $814 million.
The Tax Cuts and Jobs Act implemented a “safe harbor” provision, shielding U.S. companies from some of the effects of Pillar 2.
“But given that the safe harbor provisions expire at the end of 2026, Congress will need to decide how to rectify the TCJA and Pillar 2 clash,” according to Bloomberg Government.
What about the 21% corporate tax rate?
The corporate tax rate does not expire.
Under the Tax Cuts and Jobs Act, the corporate tax rate dropped from 35% to 21%, so businesses faced lower taxes. This provision does not expire, as lawmakers made the rate permanent. However, Congress is set to review the legislation in its entirety.
Trump said he wants an even lower tax rate for companies that make their products in the U.S. His ideal rate is 15%.
What is the likelihood of Tax Cuts and Jobs Act expiring?
It’s possible the Republican-led Congress could renew a majority of provisions, but lawmakers would need to find a funding source.
In 2017, Republicans controlled the House and the Senate, easing the way for Trump’s vision of a tax code overhaul. The Tax Cuts and Jobs Act was the largest tax code overhaul in nearly 30 years.
Extending the 2017 legislation would reduce federal tax revenue by $4.5 trillion over the next 10 years, according to the Tax Foundation.
