IRS announces inflation adjustments for tax year 2027

The IRS on Thursday announced annual inflation adjustments for nearly 70 tax provisions for tax year 2027, including increases to the standard deduction, income tax bracket thresholds, and the child tax credit. The changes generally apply to returns filed in 2028.

In Rev. Proc. 2026-35, the IRS said the standard deduction will increase to $33,200 for married couples filing jointly, up $1,000 from 2026. The standard deduction will rise to $16,600 for single taxpayers and married individuals filing separately, an increase of $500, while heads of household will receive a standard deduction of $24,925, up $775.

The maximum child tax credit will increase to $2,300 for tax year 2027, up from $2,200 in 2026. The maximum refundable portion of the credit will rise to $1,800 from $1,700.

For tax year 2027, the top marginal tax rate of 37% will apply to individual taxpayers with taxable income above $661,375 and to married couples filing jointly with taxable income above $793,650.

The other tax rates will be:

• 35% for incomes over $264,550 ($529,100 for married couples filing jointly);
• 32% for incomes over $208,325 ($416,650 for married couples filing jointly);
• 24% for incomes over $109,125 ($218,250 for married couples filing jointly);
• 22% for incomes over $52,025 ($104,050 for married couples filing jointly);
• 12% for incomes over $12,800 ($25,600 for married couples filing jointly); and
• 10% for incomes of $12,800 or less ($25,600 or less for married couples filing jointly).

The alternative minimum tax exemption amount for tax year 2027 will be $93,000 for unmarried individuals and $144,700 for married couples filing jointly. The exemption begins phasing out at $515,950 for unmarried individuals and $1,031,900 for married couples filing jointly.

The basic exclusion amount for estates of decedents who die in 2027 will increase to $15.48 million, up from $15 million for estates of decedents who died in 2026. The annual gift tax exclusion will increase to $20,000 from $19,000.

Among other inflation-adjusted provisions, the maximum earned income tax credit for taxpayers with three or more qualifying children will increase to $8,496, the foreign earned income exclusion will rise to $137,300, and the monthly limitation for qualified transportation fringe benefits and qualified parking will increase to $350.

The IRS said personal exemptions will remain at zero for tax year 2027 and that the overall limitation on itemized deductions remains eliminated, although a separate limitation applies to the tax benefit of itemized deductions claimed by taxpayers in the highest tax bracket.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.