IRS Inflation Updates: 2027 Tax Year Adjustments Finalized

The Internal Revenue Service published its annual inflation adjustments on November 5, establishing the tax rules for the 2027 tax year. The agency applied an overall inflation factor of 3.2 percent to update deductions and credits. These changes will affect tax returns filed in 2028.

The standard deduction is increasing for every filing status. Single filers will see their deduction rise from $16,100 to $16,600. Married couples filing jointly will move from $32,200 to $33,200. Heads of household will have a new standard deduction of $24,925, up from $24,150. The top marginal tax rate remains at 37 percent, but the income threshold for that bracket is rising. Single filers will pay 37 percent on income above $661,375. Married couples filing jointly will face that rate on income above $793,650.

The child tax credit is increasing by $100 to a maximum of $2,300 per child. The refundable portion of the credit also rises by $100 to $1,800. The 2025 tax law set the base credit at $2,200 and required future increases to track inflation. Other credits are adjusting upward as well. The maximum earned income tax credit for a worker without children will increase from $664 to $685. For families with two children, the maximum credit will rise from $7,316 to $7,552.

The estate tax exclusion is also adjusting for inflation. The 2025 law made the exclusion permanent at $15 million. For the 2027 tax year, that threshold will increase to $15.48 million. Several popular tax breaks from the 2025 legislation remain fixed and do not adjust for inflation. These include deductions for up to $25,000 in tip income and up to $12,500 in overtime pay. Joint filers can deduct up to $25,000 in overtime pay. Individuals aged 65 and older can claim an extra $6,000 deduction.

The Associated Press calculated the impact of these changes for households with constant incomes. A married couple earning $100,000 and using the standard deduction would see their federal income tax bill drop from $7,640 to $7,504. A single filer with an income of $60,000 would see their tax bill decrease from $5,020 to $4,952. These figures assume wages stay flat. Workers whose income rises with inflation will likely see little change in their tax burden.

Congress scheduled the fixed tax breaks for tips, overtime, and the senior deduction to expire after the 2028 tax year. Unless lawmakers act to extend them, these provisions will end. The IRS notes that the lack of inflation indexing for these specific breaks may reduce their real value over time.

Taxpayers will use these new figures when filing for the 2027 tax year. The IRS released the figures on November 5, providing a clear set of numbers for the upcoming filing season.