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IRS lifts 2027 tax bracket income limits: What it could mean for your pay

Digilifetrends Published 3 min read

All seven federal income tax brackets are set to rise next year to account for inflation, while the tax rates themselves will stay unchanged, the IRS said.

The agency’s bracket figures show how much tax is owed on different slices of taxable income. Because the U.S. tax code is progressive, higher rates apply only to income that falls within each bracket.

A photo illustration shows tax forms as the period to file returns or extensions with the IRS approaches.
A photo illustration shows tax forms as the period to file returns or extensions with the IRS approaches.

Tax advisers say those thresholds can help people estimate what they may owe and plan ahead. With the higher cutoffs, some taxpayers may be able to earn a bit more without moving into a higher rate when they file their 2027 returns in early 2028. The key is knowing where each bracket begins and ends.

Here is a look at the 2027 income thresholds for each tax rate, according to the IRS:

  • 37%: for incomes over $661,375 ($793,650 for married couples filing jointly)
  • 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)
  • 10%: for incomes of $12,800 or less ($25,600 for married couples filing jointly)

How tax brackets work

Only taxable income is used to determine your rate. Taxable income is found by subtracting adjustments such as traditional IRA or 401(k) contributions, student loan interest, and health savings account contributions, and then subtracting deductions. Those deductions are usually either the standard deduction, which the IRS sets each year, or itemized deductions.

The standard deduction, which about nine in 10 taxpayers claim, is also increasing in 2027, the IRS said. It will be $33,200 for married couples filing jointly, up from $32,200 in 2026. Single filers will be able to claim $16,600, up from $16,100.

For example, a single filer is taxed at 22% only on the income that falls within that bracket, between $52,025 and the start of the next bracket at $109,125. Any income below $52,025 is taxed at the lower 10% and 12% rates.

Lifetime gift and estate exemption also increases

The IRS also made an inflation adjustment to the lifetime gift and estate exemption.

Wealthy Americans will be able to transfer up to $15.48 million tax-free during life and at death, up from $15 million in 2026. For married couples, that means a combined estate reduction of $30.96 million, which could lower federal estate taxes for heirs.

State death taxes, however, may still apply depending on local rules, and tax professionals say those bills can add up quickly.

Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.

This article originally appeared on USA TODAY: IRS adjusts 2027 tax brackets. How your paycheck changes

Reporting by Medora Lee, USA TODAY / USA TODAY

USA TODAY Network via Reuters Connect

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