Executive Summary
What happens to equity compensation if TCJA provisions sunset?
If TCJA provisions revert to pre-2017 levels, the top federal income tax bracket would rise from 37% to 39.6%, the estate tax exemption would drop from approximately $14M to ~$7M per person, and AMT exemptions would shrink. For equity holders, this means: (1) RSU vesting and NSO exercises would be taxed at higher rates, (2) estate planning with equity would require earlier gifting, and (3) strategic timing of ISO exercises and stock sales could save significant tax. The One Big Beautiful Bill (2025) extended most TCJA provisions—but understanding sunset mechanics remains critical for contingency planning.
The Tax Cuts and Jobs Act (TCJA) of 2017 brought sweeping changes to individual taxation—lower brackets, doubled estate tax exemption, and higher AMT exemptions. These provisions were originally scheduled to sunset after December 31, 2025, which would have reverted the tax code to pre-2018 rules. The One Big Beautiful Bill Act (OBBBA) of 2025 extended most provisions, but the sunset framework remains a critical lens for equity compensation planning.
The bottom line: Whether or not a sunset occurs, equity holders who understand the mechanics can make better decisions. A 2.6 percentage point increase on a $500,000 RSU vesting is $13,000 in additional tax. An estate tax exemption halved from $14M to $7M could trigger $2.8M in estate tax on the same equity. Strategic timing—exercising options, selling shares, or making gifts before rate increases—can save six or seven figures.1
Critical Warning: Tax legislation is unpredictable. The OBBBA extended TCJA through 2025, but future Congresses could allow sunsets, enact new reforms, or create hybrid regimes. Do not assume current rates are permanent. Model your exposure and maintain flexibility.
What Was at Stake: Pre-Sunset vs. Post-Sunset
Income Tax Brackets
| Bracket (Single, 2025) | Current (TCJA) | Pre-TCJA (If Sunset) | Impact on Equity Income |
|---|---|---|---|
| Top bracket | 37% (over $609,350) | 39.6% (over ~$470,000) | +2.6 pts on RSU vesting, NSO exercise, disqualifying dispositions |
| 33% bracket | 33% ($191,950–$243,725) | 33% (similar) | Minimal change |
| 28% bracket | 24% ($100,525–$191,950) | 28% (lower threshold) | More income taxed at 28% vs 24% |
| 25% bracket | 22% ($47,150–$100,525) | 25% (lower threshold) | Bracket creep |
For tech employees with large RSU vesting or NSO exercises, the top bracket reversion is the most consequential. Ordinary income from equity compensation is taxed at marginal rates—every dollar above the threshold pays the top rate.2
Example: $800,000 in RSU vesting (single filer). At 37%, federal tax on the marginal portion is $296,000. At 39.6%, it would be $316,800—$20,800 more.
Estate and Gift Tax Exemption
The TCJA doubled the estate and gift tax exemption to approximately $13.61M per person (2024) and $13.99M (2025), indexed for inflation. Without extension, the exemption would have reverted to approximately $5.49M (2017 base) plus inflation—roughly $7M per person in 2026.
| Scenario | Exemption (Single) | Exemption (Couple) | Tax on $15M Estate |
|---|---|---|---|
| Current (OBBBA extended) | ~$15M (2026) | ~$30M | $0 |
| If reverted | ~$7M | ~$14M | ~$2.8M (40% on excess) |
For founders and executives with significant equity in estate plans, this is a seven-figure difference. See our Estate Planning with Stock Options and RSUs guide for strategies.3
AMT Exemptions
The TCJA raised AMT exemptions and phaseout thresholds. Without extension, exemptions would have dropped from ~$88,100 (single) to approximately $55,000 (single), with lower phaseout thresholds. For ISO holders, this would have dramatically increased AMT exposure. The OBBBA made higher exemptions permanent—but the lesson remains: AMT is highly sensitive to legislative changes. See our AMT Planning Guide.
Strategic Implications for Equity Holders
1. Timing of ISO Exercises and NSO Exercises
If tax rates are expected to rise, accelerating exercises into the current year can lock in lower rates. The trade-off: you may trigger AMT (ISOs) or ordinary income (NSOs) earlier. For ISOs, the AMT crossover point becomes even more critical when rates are in flux.
Action: Model your crossover point under current and hypothetical higher-rate scenarios. If you're near a cliff, consider exercising before a potential rate increase.
2. RSU Vesting and Sell-to-Cover
RSUs vest on a schedule—you generally cannot accelerate or defer. But you can control when you sell vested shares. If rates are expected to rise, selling in the current year locks in the current capital gains rate (0%, 15%, or 20% for long-term) and avoids future rate uncertainty on appreciation.
Action: Coordinate with your year-end tax planning. If you're in a low-income year, consider harvesting gains at current rates.
3. Estate Planning and Gifting
The estate tax exemption is use-it-or-lose-it if it sunsets. Making gifts of equity now uses the current exemption amount; if the exemption drops later, prior gifts are grandfathered.
Action: If your net worth (including equity) approaches or exceeds the exemption, consult an estate attorney. Gifting equity or using SLATs/GRATs can lock in the current exemption.
4. QSBS and Capital Gains
QSBS (Section 1202) and preferential capital gains rates were not directly part of the TCJA sunset—but they are politically sensitive. Future legislation could modify or eliminate them.
Action: If you hold QSBS-eligible stock, understand the QSBS exclusion rules. Accelerating a qualifying sale before potential changes may be prudent if you're near a liquidity event.
Contingency Planning Framework
| Risk | Trigger | Mitigation |
|---|---|---|
| Higher ordinary income rates | Bracket reversion to 39.6% | Accelerate NSO exercises, disqualifying dispositions; maximize deductions in high-income years |
| Lower estate exemption | Sunset or new legislation | Gift equity now; use SLATs, GRATs; review estate plan annually |
| AMT exemption reduction | Legislative change | Recalculate ISO crossover point; coordinate with high-income years |
| Capital gains rate increase | New legislation | Harvest gains in low-income years; consider charitable giving of appreciated stock |
| QSBS modification | Legislative change | Accelerate qualifying dispositions if near liquidity |
What the OBBBA Changed (2025–2026)
The One Big Beautiful Bill Act (signed July 2025) permanently extended most TCJA individual provisions and made targeted changes:
- AMT exemptions: Permanent at $90,100 (single) / $140,200 (MFJ) for 2026
- Estate tax exemption: Raised to $15M per person, permanent
- QSBS: Expanded to $15M cap, new tiered holding structure
- SALT cap: Increased to $40,000 (through 2029) for taxpayers under $500K MAGI
For full details, see our OBBB Equity Compensation Guide.
Key Takeaways
- Sunset mechanics matter. Even with extensions, understanding what would have reverted helps you plan for future uncertainty.
- Timing is everything. Exercising, selling, or gifting before rate increases can save six or seven figures.
- Model your exposure. Run scenarios for bracket reversion, estate tax changes, and AMT modifications.
- Stay informed. Tax legislation changes frequently. Review your plan annually with a qualified advisor.
- Don't panic. The OBBBA extended most provisions. Use this guide for contingency planning, not immediate action—unless your specific situation warrants it.
Footnotes
Disclaimer: This guide discusses legal tax optimization strategies only. Tax evasion is illegal. This content is for educational purposes and does not constitute tax, legal, or financial advice. Tax laws vary by jurisdiction and change frequently. Always consult a qualified tax professional before making decisions. The authors accept no liability for actions taken based on this content.
Primary Sources
| Source | Type | URL |
|---|---|---|
| IRC Section 1 | Statute | law.cornell.edu/uscode/text/26/1 |
| IRC Section 2010 | Statute | law.cornell.edu/uscode/text/26/2010 |
| IRS Revenue Procedure 2024-25 | Official Guidance | irs.gov/newsroom |
Last Updated: March 2026 | Research Team: VestingStrategy
Footnotes
-
IRC Section 1 specifies individual income tax rates. Pre-TCJA rates were set by the Tax Reform Act of 1986 and subsequent legislation. The 39.6% top bracket applied to taxable income over inflation-adjusted thresholds. ↩
-
Ordinary income from RSU vesting, NSO exercise, and disqualifying ISO dispositions is taxed at graduated rates. The marginal rate on the last dollar of income determines the incremental tax on additional equity compensation. ↩
-
IRC Section 2010(c) provides the basic exclusion amount for estate and gift tax. The TCJA doubled this amount for estates of decedents dying and gifts made through 2025. The OBBBA made the increased amount permanent and raised it to $15M for 2026. ↩