IRS Sets 2027 Tax Limits

The IRS published inflation adjustments for the 2027 tax year on November 5, raising income tax brackets by approximately 3.2%.

This increase is steeper than the 2% adjustment applied to the current tax year. The IRS cited the rekindled impact of inflation on the U.S. economy, a trend also visible in recent cost-of-living adjustments for Social Security recipients.

Standard deductions are rising to match the inflation rate. Individual filers will see their deduction increase by $500 to reach $16,600. Married couples filing jointly will receive an additional $1,000, bringing their total standard deduction to $33,200. These adjustments affect roughly 70 other tax provisions and aim to prevent households from being pushed into higher tax rates solely due to rising prices.

The 3.2% adjustment for 2027 is smaller than the 7% increase seen after the sharp inflation of 2022. The timing of the release, days after the midterm elections, reflects how high gas and retail prices influenced voter behavior and led to the ousting of several Republican incumbents.

Under the new Republican tax law, the child tax credit will increase to $2,300 per eligible child for the 2027 tax year. This follows the rise to a maximum of $2,200 in the previous year. The credit is indexed to inflation, ensuring it keeps pace with economic changes.

Seniors will receive increased supplemental standard deductions. Individuals aged 65 and older can claim an extra $2,100 if filing singly. For married couples, the extra deduction is $1,700 per person. A senior bonus from last year's law also remains in effect, offering a potential deduction of up to $12,000 for married couples with a modified adjusted gross income below $150,000.

The state and local tax deduction will rise to $40,804 for 2027. The income threshold for the full deduction will increase to $510,050. The law mandates these specific increases to grow by 1% annually through 2029, rather than being tied directly to general inflation rates. Most households pay tax across seven progressive rates ranging from 10% to 37%, and these new brackets will apply to income earned in 2027.