High-income clients will have more room before the top federal rates apply in 2027, based on new inflation-adjusted tax brackets released by the Internal Revenue Service.
The IRS has raised the threshold for the 37% bracket to $793,650 for married couples filing jointly and $661,375 for single filers.
The annual inflation adjustments, released Thursday in Revenue Procedure 2026-35, also lift the estate tax exclusion to $15.48 million. They raise several limits that matter to business owners as well, including Section 179 expensing and, for the first time, the qualified small business stock exclusion cap.
“American individuals and businesses will see increased tax benefits next tax year ranging from an increase in the standard deduction and the Child Tax Credit for families, and a boost to the amount that can be expensed by businesses,” IRS Chief Executive Officer Frank J. Bisignano said in a statement, while also highlighting larger credits and deductions under the Working Families Tax Cuts (WFTC) set to kick in.
All in all, the official IRS inflation adjustments to the income tax brackets were close to the earlier 3.2% projected by Bloomberg Tax in September, differing by only a rounding error of less than a few basis points.
For joint filers, the 35% rate starts above $529,100 and the 32% rate above $416,650. For single filers, those thresholds are $264,550 and $208,325.
The 32% band for single filers covers only about $56,000 of taxable income. A year-end bonus, a large Roth conversion or a partial business sale can carry a single client through two brackets in one year. Joint filers have roughly twice that room.
For many top earners, the bigger issue is the 2025 tax law’s cap on the benefit of itemized deductions for taxpayers in the 37% bracket. That cap makes the timing of large charitable gifts worth revisiting. Clients whose income has outpaced inflation since the IRS reset brackets for 2026 may find themselves in that bracket for the first time.
Joint filers pay 0% on long-term gains up to $102,100 of taxable income and 15% up to $633,600, with 20% above that. For single filers that aren't married or heads of households, the cutoffs are $51,050 and $563,200.
Trusts remain the outlier. A non-grantor trust reaches the 37% ordinary rate above $16,500 of taxable income and the 20% capital gains rate above $16,750. That gap makes distributions to beneficiaries in lower brackets worth modeling before income piles up inside the trust.
Clients holding incentive stock options should also run alternative minimum tax projections. The AMT exemption for joint filers rises to $144,700 and begins phasing out at $1,031,900.
Limits on the qualified business income deduction begin phasing in at $416,600 of taxable income for joint filers and $208,300 for most others. The phase-in range runs to $566,600 and $283,300, respectively. Owners of professional practices, such as physicians, attorneys and consultants, are the most exposed in that range.
Section 179 expensing climbs to $2,640,000 from $2,560,000. The limit shrinks dollar for dollar once qualifying property placed in service during the year exceeds $4,230,000.
The most significant change for founders may be in Section 1202. The 2025 law indexed qualified small business stock limits for years after 2026. In 2027, the per-issuer gain exclusion cap rises to $15,480,000, and the gross-asset ceiling for qualifying companies rises to $77,390,000. Clients planning an exit over the next several years should recheck how much gain they can exclude.
The basic exclusion for estates of people who die in 2027 rises to $15,480,000, up from $15 million. The same figure sets the generation-skipping transfer tax exemption. A married couple using both spouses’ exclusions can shelter $30.96 million.
The annual gift exclusion is also being increased to $20,000 per recipient from $19,000. Couples who split gifts can therefore move $40,000 a year to each child or grandchild without touching their lifetime exclusion.
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