USA: IRS Announces 2027 Tax Inflation Adjustments for Taxpayers

Impact

• The standard deduction for tax year 2027 increases to $16,600 for single taxpayers and married individuals filing separately, up $500 from 2026. For married couples filing jointly, it increases to $33,200, up $1,000. The deduction for heads of households rises to $24,925.
• The seven federal income tax rates remain unchanged at 10%, 12%, 22%, 24%, 32%, 35% and 37%. However, the income thresholds are adjusted for inflation. For single taxpayers, the 10% bracket applies to taxable income up to $12,800; 12% up to $52,025; 22% up to $109,125; 24% up to $208,325; 32% up to $264,550; and 35% up to $661,375. Income above $661,375 is taxed at 37%. For married couples filing jointly, the top 37% bracket begins at $793,650.
• The maximum Child Tax Credit increases by $100 to $2,300 for tax year 2027. The refundable portion of the credit also increases by $100 to $1,800.
• The annual contribution limit for health Flexible Spending Arrangements (FSAs) increases to $3,500 for tax year 2027, up $100 from 2026. The maximum carryover of unused FSA amounts increases to $700, up $20.
• The monthly limitation for qualified transportation fringe benefits and qualified parking increases to $350 for tax year 2027, representing a $10 increase from 2026.
• The maximum Earned Income Tax Credit (EITC) increases to $8,496 for taxpayers with three or more qualifying children, compared with $8,231 for tax year 2026. Other credit amounts, income thresholds and phase-out limits are detailed in Revenue Procedure 2026-35.
• The foreign earned income exclusion increases to $137,300 for tax year 2027, up from $132,900 in 2026.
• The Alternative Minimum Tax (AMT) exemption for unmarried individuals increases to $93,000, with the phase-out beginning at $515,950. For married couples filing jointly, the exemption increases to $144,700, with the phase-out beginning at $1,031,900.
• The annual estate tax exclusion increases to $15,480,000 for individuals who die during 2027, up from $15,000,000 in 2026. The annual gift tax exclusion also increases to $20,000 per recipient, up from $19,000.
• The Section 179 expensing limit for qualifying business property increases to $2,640,000 for tax year 2027, up from $2,560,000 in 2026. The limit for sport utility vehicles increases to $33,100.
• The maximum employer-provided childcare tax credit increases to $515,943.67 for tax year 2027, compared with $500,000 in 2026. Eligible small businesses may qualify for a higher maximum credit of $619,132.40.