2027 Federal Tax Brackets Forecast: 3.2% Increase Expected
Next year, federal tax brackets are expected to increase by 3.2%, giving Americans the opportunity to earn more income before facing higher tax rates. The IRS adjusts tax brackets annually to account for inflation, providing some relief to individuals taxed at lower rates. While the IRS has not yet announced the new inflation-adjusted tax brackets for the upcoming tax season, Bloomberg Tax has forecasted a 3.2% increase based on the "chained Consumer Price Index."
Due to the absence of October 2025 inflation data caused by a government shutdown, Bloomberg Tax calculated the index using an 11-month average. The IRS has not disclosed when it will announce the inflation-adjusted brackets for the next tax season. The projected increase in income thresholds for the seven tax brackets is expected to help taxpayers avoid bracket creep, a phenomenon where income bands do not keep up with inflation, resulting in a hidden tax increase.
The anticipated 3.2% boost in income thresholds for the tax brackets is higher than the 2.7% increase seen in the current tax year. This adjustment is crucial for preventing taxpayers from being pushed into higher tax brackets due to cost-of-living pay raises. The rise in prices in 2026, particularly driven by the Iran war, has led to increased fuel costs, with diesel surpassing $6 per gallon and gasoline remaining above $4 per gallon.
Bloomberg Tax's projections indicate that the 12% tax bracket for married couples will cover taxable income ranging from $25,601 to $104,050 in 2027, with the top of that range increasing by $3,250 from the previous year. Single filers will also experience adjustments to their tax brackets for the upcoming tax season. Additionally, the standard deduction is set to rise to $33,200 for married couples filing jointly and $16,600 for single filers in 2027, up from $31,500 and $15,750, respectively, in the current tax year.
In conclusion, the projected 3.2% increase in federal tax brackets for the next tax year is expected to provide taxpayers with more flexibility in earning income before facing higher tax rates. The adjustments aim to prevent bracket creep and ensure that income thresholds keep pace with inflation, offering some financial relief to taxpayers.