IRS Announces 2027 Tax Changes: What CA Taxpayers Need To Know

CALIFORNIA — California taxpayers will be able to shield more of their income from federal taxes in 2027, while families with children could qualify for larger tax credits under inflation adjustments announced Thursday by the Internal Revenue Service.

The changes include a $1,000 increase in the standard deduction for married couples filing jointly, expanded child tax credits and higher income thresholds across all seven federal tax brackets. Benefits for lower-income workers, adoptive parents and employees with certain workplace health benefits are also increasing.

The IRS announced adjustments to nearly 70 provisions of the federal tax code, intended to prevent inflation-driven wage increases from pushing taxpayers into higher brackets or eroding the value of deductions and credits.

The changes apply to the 2027 tax year, meaning taxpayers generally won't see them reflected in their returns until they file in 2028. They do not affect 2026 federal tax returns filed early next year or California's separate state income tax system. How much taxpayers actually save will depend on their income, filing status and eligibility for various deductions and credits.

Here's what Californians need to know.

Standard Deductions Rise

The standard deduction, which reduces taxable income without requiring taxpayers to itemize expenses, will increase across all filing categories in 2027.

The new amounts are:

• Married couples filing jointly: $33,200, up $1,000 from 2026.
• Single filers: $16,600, up $500.
• Heads of households: $24,925, up $775.
• Married couples filing separately: $16,600, up $500.

Eligible older adults and taxpayers who are blind may qualify for additional deductions.

Larger Credits For Families And Workers

The maximum federal child tax credit will increase to $2,300 per qualifying child, up $100 from 2026. The maximum refundable portion will also rise by $100, to $1,800.

Refundable credits can provide money to eligible taxpayers even when their federal income tax liability has been reduced to zero, although income limits and other eligibility requirements apply. The earned income tax credit, which benefits qualifying low- and moderate-income workers, is also increasing.

For eligible taxpayers with three or more qualifying children, the maximum credit will rise from $8,231 to $8,496. Credits for workers with fewer children or no qualifying children will also increase, with the amount determined by income, filing status and family circumstances.

Health And Workplace Benefits Increase

Workers who use health flexible spending accounts to cover eligible medical expenses will be able to set aside more pretax income. The annual contribution limit will increase from $3,400 to $3,500, while the maximum carryover for plans permitting unused funds to roll into the following year will rise from $680 to $700.

The monthly federal tax exclusion limit for certain employer-provided transportation and parking benefits will also increase by $10, to $350.

Federal Tax Brackets Shift Higher

Although the seven federal income tax rates remain unchanged at 10%, 12%, 22%, 24%, 32%, 35% and 37%, the income thresholds determining which rates apply will rise in 2027.

Under the progressive federal tax system, only the portion of taxable income falling within a particular bracket is subject to that bracket's rate. Moving into a higher bracket does not mean all of a taxpayer's income is taxed at the higher percentage.

According to the IRS's 2027 tax rate schedules, the brackets will be:

Single filers:

• 10%: Taxable income up to $12,800.
• 12%: Taxable income over $12,800 to $52,025.
• 22%: Taxable income over $52,025 to $109,125.
• 24%: Taxable income over $109,125 to $208,325.
• 32%: Taxable income over $208,325 to $264,550.
• 35%: Taxable income over $264,550 to $661,375.
• 37%: Taxable income over $661,375.

Married couples filing jointly:

• 10%: Taxable income up to $25,600.
• 12%: Taxable income over $25,600 to $104,050.
• 22%: Taxable income over $104,050 to $218,250.
• 24%: Taxable income over $218,250 to $416,650.
• 32%: Taxable income over $416,650 to $529,100.
• 35%: Taxable income over $529,100 to $793,650.
• 37%: Taxable income over $793,650.

The higher thresholds could reduce federal income taxes for some taxpayers whose earnings remain unchanged, depending on their circumstances.

Other Tax Changes To Know

Several additional adjustments will affect particular groups of taxpayers:

• Adoption: The maximum federal adoption tax credit increases to $18,250, with up to $5,280 refundable.
• Gifts: The annual federal gift tax exclusion rises from $19,000 to $20,000 per recipient.
• Estates: The federal estate tax exclusion increases from $15 million to $15.48 million.
• Small businesses: The maximum Section 179 deduction for qualifying equipment and property rises to $2.64 million, subject to applicable restrictions.
• Americans working abroad: The foreign earned income exclusion increases from $132,900 to $137,300.

Not every provision is changing. Personal exemptions remain at zero, while the income thresholds for the Lifetime Learning Credit remain unchanged.

The complete list of adjustments, including additional income thresholds and eligibility requirements, is available in the IRS's Revenue Procedure 2026-35.

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