IRS announces inflation-related tax changes for 2027

• Key insight: The IRS has unveiled updated standard deductions and tax brackets for 2027.
• What's at stake: Households and companies looking to take full advantage of the revised tax breaks.

The Internal Revenue Service announced its annual inflation adjustments for tax year 2027 as inflation continues to affect taxpayers.

Revenue Procedure 2026-35 outlines the changes. The standard deduction for married couples filing jointly will rise to $33,200, an increase of $1,000 from 2026. For single taxpayers and married individuals filing separately, the deduction will be $16,600, while heads of household will be eligible for a $24,925 standard deduction.

For tax year 2027, the top tax rate remains 37% for single filers with incomes above 661,375 and for married couples filing jointly with incomes above 793,650. The other brackets are 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); and 12% for incomes over $12,800 ($25,600 for married couples filing jointly). The lowest rate remains 10% for single taxpayers with income of $12,800 or less ($25,600 or less for married couples filing jointly).

The maximum Child Tax Credit for 2027 will be $2,300, up $100 from 2026. The refundable portion of the credit will increase to $1,800, also $100 higher than the prior year.

The expanded tax benefits reflect, in part, the extension of provisions under the One Big Beautiful Bill Act, which Republicans have renamed the Working Families Tax Cuts.

"Hardworking American taxpayers will continue to benefit from the Working Families Tax Cuts and will see WFTC credits and deductions increase with this adjustment," IRS CEO Frank Bisignano said in a statement. "American individuals and businesses will see increased tax benefits next tax year ranging from an increase in the standard deduction and the Child Tax Credit for families, and a boost to the amount that can be expensed by businesses."

Alternative Minimum Tax exemption amounts: For tax year 2027, the exemption amount for unmarried individuals is $93,000 and begins to phase out at 515,950 (144,700 for married couples filing jointly, for whom the exemption begins to phase out at $1,031,900).

Estate tax exclusion: Estates of decedents who die during 2027 have a basic exclusion amount of $15,480,000, up from $15,000,000 for estates of decedents who died in 2026. For calendar year 2027, the first $20,000 of gifts to any person are not included in the total amount of taxable gifts made during the year, up from $19,000 in 2026.

Annual exclusion for gifts: For calendar year 2027, the annual exclusion for gifts rises to $20,000, up from $19,000 in 2026. The annual exclusion for gifts to a spouse who is not a U.S. citizen increases to $201,000, up from $194,000 in 2026.

For tax year 2027, taxpayers may expense up to $2,640,000 of section 179 property, up from $2,560,000 for tax year 2026. The limit for sport utility vehicles is $33,100, up from $32,000.

Adoption Credits: The maximum credit for adoptions in tax year 2027 will be the amount of qualified adoption expenses up to $18,250, up from $17,670 in 2026. The refundable portion of the credit will be $5,280.

Employer-Provided Childcare Tax Credit: The Working Families Tax Cuts also significantly boosted an important employer credit. For tax year 2027, the maximum employer-provided childcare tax credit rises to $515,943.67, up from 500,000 for 2026 (619,132.40 for eligible small businesses).

Other items affected by indexing

Earned Income Tax Credit: The maximum Earned Income Tax Credit for tax year 2027 is $8,496 for qualifying taxpayers with three or more qualifying children, up from $8,231 in 2026. Revenue Procedure 2026-35 includes a table with the maximum EITC amounts for other categories, income thresholds and phase-outs.

Qualified Transportation Fringe Benefit: For tax year 2027, the monthly limit for the qualified transportation fringe benefit and the monthly limit for qualified parking rises to $350, an increase of $10.

Health flexible spending cafeteria plans: For tax years beginning in 2027, the salary-reduction limit for health flexible spending arrangements rises to $3,500, up $100 from the prior year. For cafeteria plans that allow unused amounts to carry over, the maximum carryover becomes $700, up $20 from tax years beginning in 2026.

Medical Savings Accounts: For self-only coverage in a Medical Savings Account, the annual deductible must be at least $3,000 and no more than $4,550 for tax year 2027. The self-only out-of-pocket limit is $6,050. For family coverage, the annual deductible must be at least $6,050 and no more than $9,050, while the out-of-pocket expense limit is $11,050.

Foreign earned income exclusion: For tax year 2027, the foreign earned income exclusion rises to $137,300 from $132,900.

Items unaffected by indexing

By law, certain provisions that were once adjusted for inflation are no longer indexed.

Personal Exemptions: For tax year 2027, personal exemptions remain at 0, as they did in tax year 2026. The elimination of the personal exemption was part of the Tax Cuts and Jobs Act of 2017 and was made permanent by the WFTC. The personal exemption discussed here does not include the senior deduction added by the WFTC.

Itemized deductions: The limitation on itemized deductions was previously eliminated for tax years 2018 through 2025. That elimination was made permanent by the WFTC, though it imposes a limit on the tax benefit from itemized deductions for taxpayers in the highest tax bracket, 37%.

Lifetime Learning Credits: The modified adjusted gross income level used to phase out the Lifetime Learning Credit has not been adjusted for inflation for tax years beginning after Dec. 31, 2020. The credit phases out for taxpayers with MAGI between $80,000 and $90,000 ($160,000 and $180,000 for joint returns).