The Internal Revenue Service has released new tax brackets for 2027, raising income thresholds for each level due to inflation.
Also, for tax year 2027, the standard deduction — the part of income that is untaxed — will go up to $16,600 for individuals and reach $33,200 for married couples filing jointly.
That marks a $500 increase in the deduction for singletons and a $1,000 hike in the one for married couples filing together.
Meanwhile, the income threshold for each tax bracket went up about by around 3.22% to 3.25%, to account for inflation.
Brackets determine how much income tax workers owe, rising from a 10% rate for the lowest level to 37% for the richest.
While tax rates for each bracket went unchanged, someone whose income remains the same from this year to 2027 could hypothetically save $500 on their bill — or $1,000 for married couples filing jointly — thanks to the higher deductions. Most taxpayers take the standard deduction instead of itemizing.
The child tax credit, which lets filers with kids reduce their tax liability, is going up $100, to $2,300.
The state and local tax (SALT) deduction cap — a perennial point of contention in Washington — goes unaffected by the inflation adjustment, Mark Luscombe, principal analyst with Wolters Kluwer Tax & Accounting, told the Wall Street Journal.
There will, however, be a special 1% annual adjustment for the SALT deduction, to $40,804 for 2027, he said.
Inflation adjustments will affect estate-tax exclusions. The amount that could be excluded from estate taxes was $15 million for deaths this year. The figure is going up to $15.48 million for 2027.
For those lucky enough to receive gifts of cold, hard cash, the limit on tax-free presents is going up $1,000 per recipient, to $20,000.