IRS Raises Deductions and Credits for 2027 Tax Year
New federal figures announced Thursday increase the standard deduction by up to $1,000 and expand child tax credits, though the changes will not appear on tax returns until 2028.
By Oliver Bennett ·
The Internal Revenue Service announced a series of inflation adjustments on Thursday that will modify federal tax codes for the 2027 tax year. These updates will allow taxpayers to shield more of their income from federal taxes while providing larger credits for families with children.
The agency adjusted nearly 70 provisions within the tax code to account for rising costs. The standard deduction will increase across all filing categories. For married couples filing jointly, the deduction will rise by $1,000 to reach $33,200. Single filers will see a $500 increase to $16,600, while heads of households will gain $775, bringing their total to $24,925. Married individuals filing separately will also see their deduction rise by $500 to $16,600.
Families with children will qualify for higher tax credits under the new guidelines. The maximum federal child tax credit will increase by $100 to $2,300 per qualifying child. The refundable portion of this credit, which can provide a refund even if tax liability is zero, will also rise by $100 to $1,800. The earned income tax credit for workers with three or more qualifying children will climb from $8,231 to $8,496.
Workers utilizing flexible spending accounts for health expenses will be able to set aside more pretax money. The annual contribution limit for health flexible spending arrangements will increase from $3,400 to $3,500. For plans that permit unused funds to carry over, the maximum carryover amount will rise from $680 to $700. The monthly limit for certain employer-provided transportation and parking benefits will also increase by $10 to $350.
Income thresholds for all seven federal tax brackets will shift upward. This adjustment ensures that wage increases driven by inflation do not automatically push taxpayers into higher marginal rates. For example, the 10 percent bracket for married couples filing jointly will now extend to $25,600, up from previous limits. The highest bracket, which starts at $793,651 for joint filers, remains at a 37 percent rate but applies to a larger portion of income.
Additional adjustments will affect specific groups of taxpayers. The maximum adoption tax credit will rise to $18,250, with up to $5,280 being refundable. The annual gift tax exclusion per recipient will increase from $19,000 to $20,000. The federal estate tax exclusion will grow to $15.48 million, an increase from $15 million in 2026. Small businesses can claim a higher Section 179 deduction for qualifying equipment, rising to $2.64 million, while the foreign earned income exclusion for Americans working abroad will increase to $137,300.
These new figures will not be reflected on federal income tax returns filed in early 2027 for the 2026 tax year. Instead, the adjusted amounts will appear on returns filed in 2028. The actual savings for any individual depend on their specific income, filing status, and eligibility for various credits. Personal exemptions remain at zero, and the income thresholds for the Lifetime Learning Credit have not changed. The IRS detailed these provisions in Revenue Procedure 2026-35, which serves as the official guide for the 2027 tax year.
