The Internal Revenue Service on Nov. 5 published its inflation adjustments for tax year 2027, IR-2026-133. Revenue Procedure 2026-35 adjusts almost 70 provisions. The new figures apply to income earned in 2027, which means returns filed in 2028. They do not change the return most people will file next spring.
The release is also a good occasion to settle one of the most common misreadings in household finance: what a tax bracket actually is.
The rule: each rate applies to a slice
The federal income tax is graduated. Taxable income is divided into slices, and each slice is taxed at its own rate. Moving into a higher bracket raises the rate only on the dollars above that bracket's starting point. The dollars below it keep their lower rates.
That is the difference between a marginal rate and an average rate. The marginal rate is the rate on your last dollar of taxable income. The average rate is your total tax divided by your taxable income. Whenever some income falls in a lower bracket, the average comes out below the marginal rate.
The 2027 brackets
For tax year 2027, the IRS set these thresholds for single filers, with married couples filing jointly in parentheses:
- 10 percent on taxable income up to $12,800 ($25,600)
- 12 percent over $12,800 ($25,600)
- 22 percent over $52,025 ($104,050)
- 24 percent over $109,125 ($218,250)
- 32 percent over $208,325 ($416,650)
- 35 percent over $264,550 ($529,100)
- 37 percent over $661,375 ($793,650)
Each year's adjustment moves the dollar thresholds for inflation, so the same income can fall a little lower in the table than it did the year before.
A worked example
As an example only, take a hypothetical single filer with $60,000 of taxable income in 2027, meaning income after the standard deduction. The example ignores credits.
- The first $12,800 is taxed at 10 percent: $1,280.
- The next $39,225, from $12,800 to $52,025, is taxed at 12 percent: $4,707.
- The last $7,975, from $52,025 to $60,000, is taxed at 22 percent: $1,754.50.
The total is $7,741.50. This filer is in the 22 percent bracket, but only $7,975 of income is taxed at that rate. The average rate on taxable income is about 12.9 percent.
Crossing into a higher bracket does not raise the rate on income already taxed below the line. Only the dollars above the threshold are taxed at the new rate.
The other 2027 figures
The standard deduction for 2027 is $33,200 for married couples filing jointly, up $1,000 from 2026. It is $16,600 for single filers and married people filing separately, and $24,925 for heads of household. Personal exemptions remain at zero.
Other household figures for 2027:
- The maximum child tax credit is $2,300, up $100. Up to $1,800 of it is refundable, also up $100.
- The maximum earned income tax credit is $8,496 for filers with three or more qualifying children, up from $8,231.
- The salary-reduction limit for a health flexible spending account is $3,500, up $100. The maximum carryover is $700, up $20.
- The monthly limit for qualified transportation fringe benefits and qualified parking is $350, up $10.
- The annual gift tax exclusion is $20,000, up from $19,000.
- The basic exclusion amount for estates is $15,480,000, up from $15,000,000.
Credits work differently from brackets. A deduction lowers the income the brackets apply to. A credit is subtracted from the tax itself.
Retirement limits are a separate notice
The IRS has not yet announced the 2027 contribution limits for 401(k) plans and individual retirement accounts. Those limits come in a separate release; last year the agency announced the 2026 figures on Nov. 13, in IR-2025-111. For 2026, the 401(k) elective deferral limit is $24,500 and the IRA limit is $7,500, the IRS said. A contribution limit governs how much can go into the container. It says nothing about what the money inside will earn.