All seven federal income tax brackets will move higher next year to adjust for inflation, while tax rates remain the same, the IRS said.
The IRS announces federal income tax brackets that determine how much tax you pay on different portions of your taxable income. Because the U.S. tax system is progressive, higher tax rates apply only to the portion of income that falls within each tax bracket.
Knowing these can help you understand what you might owe and enable you to plan accordingly, tax professionals say. With higher income thresholds, Americans may be able to earn a little more without paying higher tax rates when they file their 2027 taxes in early 2028. They just need to know what level of income to stay under.
Here's a breakdown of income
thresholds at each tax rate in 2027, according to the IRS:
- 37%: for incomes over $661,375 ($793,650 for married couples filing jointly)
- 35%: for incomes over $264,550 ($529,100 for married couples filing jointly)
- 32%: for incomes over $208,325 ($416,650 for married couples filing jointly)
- 24%: for incomes over $109,125 ($218,250 for married couples filing jointly)
- 22%: for incomes over $52,025 ($104,050 for married couples filing jointly)
- 12%: for incomes over $12,800 ($25,600 for married couples filing jointly)
- 10%: for incomes of $12,800 or less ($25,600 for married couples filing jointly)
How do tax brackets work?
Only taxable income is counted to determine what rate you pay. Taxable income is calculated by subtracting adjustments like traditional IRA or 401(k) contributions, student loan interest, and health savings account contributions and then subtracting deductions. The deductions are usually the fixed standard deduction determined annually by the IRS or itemized deductions.
The standard deduction, which about 9 of 10 taxpayers take, is also rising in 2027, the IRS said. It will be $33,200 for married couples filing jointly, up from $32,200 in 2026. Single filers can claim $16,600, up from $16,100.
If you're a single filer, you are only taxed 22% on the specific dollars that fall into that bracket—between $52,025 and and the start of the next higher bracket, $109,125. All income below $52,025 is taxed at the lower 10% and 12% rates.
Lifetime gift and estate exemption gets a boost, too
The IRS also applied an inflation adjustment for the lifetime gift and estate exemption.
Each wealthy American will be able to give up to $15.48 million in 2027, up from $15 million in 2026, tax-free during life and at death. That means a couple could reduce their estate by $30.96 million and their heirs pay less federal estate tax at death.
However, if your state has death taxes, those would still apply based on state rules. Some of these can add up quickly, tax professionals warn.
Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
This article originally appeared on USA TODAY: IRS adjusts 2027 tax brackets. How your paycheck changes
