Bigger Tax Breaks, Child Tax Credits Coming In 2027: What IL Taxpayers Should Know

Illinois 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 sweeping 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, a larger child tax credit and higher income thresholds for all seven federal tax brackets. Tax benefits for lower-income workers, adoptive parents and people with certain workplace health benefits are also increasing.

The IRS adjusted nearly 70 provisions of the federal tax code to account for inflation.

Illinois taxpayers won’t see the changes reflected when they file their 2026 federal income tax returns early next year. The new amounts will be reflected on returns filed in 2028.

The changes are intended to prevent inflation-driven wage increases from pushing taxpayers into higher brackets or eroding the value of deductions and credits. How much taxpayers actually save will depend on their income, filing status, eligibility for credits and other circumstances.

Here’s what Illinois taxpayers need to know.

Standard Deductions Rise

The standard deduction, which reduces the amount of income subject to federal taxation without requiring taxpayers to itemize expenses, will increase for all filing categories in 2027.

The new deductions 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.

For a married couple filing jointly with $100,000 in adjusted gross income, the higher standard deduction would reduce their taxable income to $66,800, assuming no other adjustments. A single taxpayer with the same $100,000 in adjusted gross income could subtract the $16,600 standard deduction, leaving $83,400 in taxable income, assuming no other adjustments.

Taxpayers who qualify for additional deductions, including those for older adults or people who are blind, may be able to reduce their taxable income even more.

Families Get Larger Credits

Illinois parents could see a more noticeable benefit from the changes.

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

Refundable credits can provide money back to eligible taxpayers even when their federal income tax liability is reduced to zero. Eligibility and income restrictions still apply.

The earned income tax credit, which benefits eligible low- and moderate-income workers, is also increasing.

For taxpayers with three or more qualifying children, the maximum credit will rise to $8,496, compared with $8,231 in 2026. The maximum credits for families with fewer children and qualifying workers without children are also increasing.

The actual amount depends on income, marital status and the number of qualifying children.

Health Benefits Increase

Illinois workers who use flexible spending accounts to pay for eligible health expenses will be able to set aside more pretax money.

The annual contribution limit for health flexible spending arrangements will increase to $3,500, up from $3,400 in 2026.

For plans that allow unused funds to carry over, the maximum carryover will increase to $700, up from $680.

The monthly limit for certain employer-provided transportation and parking benefits will rise to $350, an increase of $10.

Tax Brackets Shift

Because the U.S. federal income tax structure is progressive, marginal tax rates elevate as an individual's earnings grow. Under this system, moving up into a higher marginal bracket only subjects the portion of income within that specific threshold to the higher percentage rate, rather than taxing all earnings at that top rate.

To reflect inflation adjustments, the IRS has shifted the income thresholds upward across all seven brackets: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and 37 percent.

Here’s how it will shake out:

Taxable income and tax rates for married couples filing jointly:

$0 to $25,600: 10 percent of taxable income

$25,601 to $104,050: $2,560 plus 12 percent of the amount over $25,600

$104,051 to $218,250: $11,974 plus 22 percent of the amount over $104,050

$218,251 to $416,650: $37,098 plus 24 percent of the amount over $218,250

$416,651 to $529,100: $84,714 plus 32 percent of the amount over $416,650

$529,101 to $793,650: $120,698 plus 35 percent of the amount over $529,100

$793,651 or more: $213,290.50 plus 37 percent of the amount over $793,650

Taxable income and tax rates for single filers:

$0 to $12,800: 10 percent of taxable income

$12,801 to $52,025: $1,280 plus 12 percent of amount over $12,800

$52,026 to $109,125: $5,987 plus 22 percent of amount over $52,025

$109,126 to $208,325: $18,549 plus 24 percent of amount over $109,125

$208,326 to $264,550: $42,357 plus 32 percent of the amount over $208,325.

$264,551 to $661,375: $60,349 plus 35 percent of the amount over $264,550.

$661,376 or more: $199,237.75 plus 37 percent of amount over $661,375

Other Changes To Know

Several additional adjustments may benefit specific groups of taxpayers:

• Adoption: The maximum adoption tax credit increases to $18,250, with up to $5,280 refundable.
• Gifts: The annual gift tax exclusion rises from $19,000 to $20,000 per recipient.
• Estates: The federal estate tax exclusion increases to $15.48 million, up from $15 million in 2026.
• Small businesses: The maximum Section 179 deduction for qualifying business equipment and property rises to $2.64 million, subject to applicable restrictions.
• Americans working abroad: The foreign earned income exclusion increases to $137,300, up from $132,900.

Not everything is increasing. Personal exemptions remain at zero, and the income thresholds for the Lifetime Learning Credit are unchanged.

Taxpayers can review the complete list of inflation adjustments in the IRS's Revenue Procedure 2026-35, which includes detailed income thresholds, eligibility limits and other provisions taking effect in 2027.