IRS sets higher standard deductions and other tax updates for 2027

Key takeaways:

• The standard deduction rises to $33,200 for married couples filing jointly and $16,600 for single taxpayers.
• Federal income tax brackets will move higher to reflect inflation, which could lower taxes for some filers.
• The child tax credit increases to $2,300, while the earned income tax credit reaches $8,496 for qualifying families with three or more children.
• Flexible spending account contribution limits increase to $3,500, and the annual gift tax exclusion rises to $20,000.

The Internal Revenue Service has announced a wide range of inflation-based updates for the 2027 tax year, including changes to the standard deduction and the amount taxpayers can set aside in flexible spending accounts.

These inflation adjustments may help keep 2027 tax bills from rising as much, or even trim them slightly, for many households when returns are filed in 2028.

With inflation running higher, taxpayers should expect notable changes in the annual inflation adjustments tied to tax brackets and several tax benefits for 2027.

The standard deduction, which many filers use instead of itemizing, will be $33,200 for married couples filing jointly in 2027, an increase of $1,000 from 2026.

About 90% of taxpayers currently claim the standard deduction rather than itemizing expenses such as mortgage interest and other deductions.

For single taxpayers and married people filing separately, the standard deduction will rise by $500 to $16,600 in 2027. For heads of household, it will increase to $24,925, up $775 from 2026’s $24,150.

These adjustments apply to 2027 tax returns, not the 2026 returns filed next year. The IRS also revised the marginal tax rates for 2027. Here is a look at several changes many taxpayers may be tracking:

Flexible spending accounts: Employees will be able to contribute up to $3,500 to health flexible spending accounts in 2027, up $100 from 2026.

The IRS also said the maximum carryover amount will be $700 in 2027, an increase of $20 from 2026, for cafeteria plans that allow unused funds to roll over into the following year.

Child tax credit: The maximum child tax credit will rise by $100 to $2,300 in 2027. For that tax year, the refundable portion will be $1,800, also up $100 from 2026.

Earned income tax credit: The maximum earned income tax credit will be $8,496 in 2027 for qualifying taxpayers with three or more qualifying children. That compares with a maximum of $8,231 for tax year 2026.

Annual gift exclusion: Wealthier grandparents and others often watch the annual exclusion for gifts, which will increase to $20,000 in 2027 from $19,000 for calendar year 2026. The annual exclusion for gifts to a spouse who is not a U.S. citizen will rise to $201,000 for calendar year 2027 from $194,000 in 2026. This threshold is often used in estate planning.

Adoptions: The maximum adoption credit for 2027 will cover qualified adoption expenses up to $18,250, which is $580 more than in 2026. The refundable portion of the credit for tax year 2027 will be $5,280.

The inflation indexing of marginal tax rates means more of a person’s 2027 income could be taxed at a lower rate. The tax brackets themselves are unchanged, but the income thresholds tied to them will rise with inflation.

For tax year 2027, the top tax rate remains 37% for single filers with income above $661,375 or married couples filing jointly with income 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);
• 12% for incomes over $12,800 ($25,600 for married couples filing jointly).