US: IRS announces 2027 tax inflation adjustments for individual income, gift, and estate taxes

The IRS has issued Revenue Procedure 2026-35, setting inflation-adjusted tax brackets and other tax thresholds for 2027, including higher annual gift and estate tax exclusions and a new Education Freedom Tax Credit, while retaining the seven existing federal income tax rates ranging from 10% to 37%.

The US Internal Revenue Service (IRS) issued Revenue Procedure 2026-35 and News Release IR-2026-133 on 5 November 2026, establishing annual inflation adjustments for approximately 70 tax provisions for tax year 2027.

These statutory adjustments, governing tax returns filed during calendar year 2028, apply an annual cost-of-living indexing factor of 3.2%. This adjustment rate exceeds the inflation factors applied in the preceding two tax years, reflecting ongoing economic inflation adjustments across federal tax provisions.

The 2027 tax adjustments under IRC Section 1(f) aim to prevent bracket creep by increasing tax bracket thresholds and deduction amounts to account for inflation, while retaining the seven marginal tax rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

Federal income tax rate schedules by filing status

Federal individual income tax schedules maintain a progressive rate structure across seven marginal tiers. Taxpayers pay ascending marginal rates only on income within specified statutory windows. The 2027 adjustments expand these income windows across all four primary filing statuses.

Married individuals filing joint returns and surviving spouses

For 2027, the 12% tax bracket for joint filers and qualifying surviving spouses will extend to USD 104,050, up from USD 100,800 in 2026, while the top 37% rate will apply to taxable income exceeding USD 793,650, up from USD 768,700.

Single taxpayers

For 2027, the 10% tax bracket for unmarried taxpayers will extend to USD 12,800, up from USD 12,400; the 24% bracket ceiling will rise to USD 208,325; and the top 37% rate will apply to taxable income exceeding USD 661,375, compared with USD 640,600 in 2026.

Heads of households

For 2027, unmarried taxpayers supporting qualified dependents will have a higher 12% bracket ceiling of USD 69,650, up from USD 67,450 in 2026, while the top 37% rate will apply to taxable income exceeding USD 661,350.

Married individuals filing separate returns

For 2027, married taxpayers filing separately will have the same tax bracket thresholds as single filers through the 32% tier. The 35% rate will apply to taxable income between USD 264,551 and USD 396,825, with the top 37% rate applying to income above USD 396,825, up from USD 384,350 in 2026.

Other tax changes for 2027

Annual gift tax exclusion

For 2027, the annual gift tax exclusion under Section 2503(b) will increase to USD 20,000 per recipient, up from USD 19,000 in 2026, allowing married couples using gift-splitting to transfer up to USD 40,000 per recipient without filing a federal gift tax return. The annual exclusion for gifts to non-US citizen spouses will also rise to USD 201,000 from USD 194,000, while the threshold for covered gifts or bequests from covered expatriates will increase to USD 20,000.

Lifetime estate tax basic exclusion

For 2027, the federal estate tax basic exclusion amount under Section 2010(c)(3) will increase to USD 15.48 million, up from USD 15 million for 2026, allowing a larger portion of an individual’s estate to pass without federal estate tax. With portability elections filed through Form 706, married couples can combine their exclusions to shield up to USD 30.96 million from federal estate tax. The USD 15.48 million basic exclusion amount will also set the exemption threshold for the generation-skipping transfer (GST) tax under Section 2631(c).

Education freedom tax credit

The Education Freedom Tax Credit provides a nonrefundable federal tax credit for qualifying contributions to approved scholarship granting organisations in 30 participating states, capped at USD 1,700 for individual taxpayers and USD 3,400 for joint filers, to fund K-12 student scholarships.