Tax Law Changes in 2027

Tax Law Changes in 2027: What Taxpayers Need to Know

As the provisions of the 2017 Tax Cuts and Jobs Act begin to sunset, tax year 2027 will introduce several significant adjustments to the federal tax code. These changes, set in motion by current law, will affect individual tax rates, deductions, credits, and estate planning thresholds. Understanding these shifts now allows individuals and businesses to develop effective strategies before the new rules take effect.

Major Changes to Individual Income Tax Rates and Brackets

After 2025, the seven-bracket tax rate structure established by the TCJA expires. Taxpayers can expect a return to the pre-2018 brackets, which include rates of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. The income thresholds for each bracket will be adjusted for inflation, but most households in the middle and upper income ranges will likely face higher marginal rates starting in 2027.

The standard deduction will also decrease substantially. The higher amounts implemented under the TCJA—currently projected to exceed $15,000 for single filers and $30,000 for joint filers by 2025—will revert to pre-TCJA levels (approximately half those amounts when adjusted for inflation). This reduction may make itemized deductions more attractive for many taxpayers.

Changes to Tax Credits and Exemptions

The Child Tax Credit will be cut in half, returning to $1,000 per qualifying child from the current $2,000 level. Additionally, the refundable portion of the credit will shrink, potentially affecting families with moderate incomes.

Personal exemptions, suspended since 2018, are scheduled to return. Taxpayers may once again claim an exemption for themselves, their spouse, and dependents. The exemption amount will be adjusted for inflation from its 2017 base of $4,050. This change could provide meaningful relief for larger families but will be partially offset by the lower standard deduction and reduced child tax credit.

The $10,000 cap on the state and local tax (SALT) deduction will expire, allowing taxpayers who itemize to deduct the full amount of their eligible property, income, and sales taxes. This will primarily benefit residents of high-tax states.

Estate Tax and Business Implications

The federal estate and gift tax exemption, which is projected to exceed $13 million per person in 2025, will be reduced by roughly half in 2026 and 2027. This reduction will bring more estates into taxable territory and may prompt high-net-worth individuals to accelerate estate planning strategies.

While many business provisions of the TCJA were made permanent, certain international tax rules and depreciation schedules will face modifications. Pass-through entities should review how the expiration of the 20% qualified business income deduction phase-outs may affect their 2027 liabilities.

With these adjustments on the horizon, proactive Tax Preparation will be critical. Taxpayers should evaluate their withholding, adjust payroll deductions where possible, and consider accelerating or deferring income and deductions before the end of 2025. Working with a qualified tax professional can help identify planning opportunities unique to each financial situation.

Business owners, in particular, should model the impact of these changes on cash flow and consider whether entity structure adjustments are warranted. Although Congress could still pass legislation to extend or modify certain provisions, current law points to notable increases in tax obligations for many Americans beginning in tax year 2027.

Staying informed and organizing financial records early will reduce stress during filing season. By incorporating these anticipated changes into long-term financial plans today, individuals and businesses can position themselves for continued success under the evolving tax landscape.

Sources

• https://www.jct.gov/publications/2018/jcx-69-18/
• https://www.congress.gov/115/plaws/publ97/PLAW-115publ97.pdf
• https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-of-2017-resource-center
• https://www.jct.gov/publications/2023/jcx-1-23/
• https://home.treasury.gov/system/files/131/Treasury-Report-TCJA-2020.pdf