Rev. Proc. 2026-35, November 5, 2026

Overview and Legislative Authority

The Internal Revenue Service released Revenue Procedure 2026-35, establishing the annual inflation adjustments for key tax provisions applicable to tax year 2027. Under Section 1 of the Revenue Procedure, the IRS emphasizes the underlying authority and potential for statutory modification:

“This revenue procedure sets forth inflation-adjusted items for 2027 for various Code provisions as in effect on [Release Date, 2026]. The inflation adjusted items for the Code sections set forth in section 3 of this revenue procedure are generally determined by reference to § 1(f). If amendments to the Code are enacted for 2027 after [Release Date, 2026], taxpayers should consult additional guidance to determine whether these adjustments remain applicable for 2027.”

Furthermore, Section 2.01 addresses statutory amendments impacting small business stock gain exclusions:

“Section 70431 of Public Law 119-21, 139 Stat. 72 (July 4, 2025), commonly known as the One, Big, Beautiful Bill Act amends § 1202(b). Certain amounts referred to in § 1202(b) are adjusted for inflation for years beginning after 2026.”

This article provides a technical analysis of the revised figures across key tax categories for tax planning, compliance, and client advisory engagements.

Individual Income Tax Rate Schedules

For taxable years beginning in 2027, the tax rate brackets under I.R.C. § 1(j)(2) and Rev. Proc. 2026-35 § 3.01 are adjusted as set forth below. Practitioners must apply these revised thresholds for estimated tax calculations and structural tax planning.

Married Individuals Filing Joint Returns and Surviving Spouses (I.R.C. § 1(j)(2)(A), Rev. Proc. 2026-35 § 3.01, Table 1)

Taxable Income Bracket	Marginal Rate	Tax Calculation
Not over $25,600	10%	10% of taxable income
Over $25,600 to $104,050	12%	$2,560.00 + 12% of excess over $25,600
Over $104,050 to $218,250	22%	$11,974.00 + 22% of excess over $104,050
Over $218,250 to $416,650	24%	$37,098.00 + 24% of excess over $218,250
Over $416,650 to $529,100	32%	$84,714.00 + 32% of excess over $416,650
Over $529,100 to $793,650	35%	$120,698.00 + 35% of excess over $529,100
Over $793,650	37%	$213,290.50 + 37% of excess over $793,650

Heads of Households (I.R.C. § 1(j)(2)(B), Rev. Proc. 2026-35 § 3.01, Table 2)

Taxable Income Bracket	Marginal Rate	Tax Calculation
Not over $18,250	10%	10% of taxable income
Over $18,250 to $69,650	12%	$1,825.00 + 12% of excess over $18,250
Over $69,650 to $109,100	22%	$7,993.00 + 22% of excess over $69,650
Over $109,100 to $208,300	24%	$16,672.00 + 24% of excess over $109,100
Over $208,300 to $264,550	32%	$40,480.00 + 32% of excess over $208,300
Over $264,550 to $661,350	35%	$58,480.00 + 35% of excess over $264,550
Over $661,350	37%	$197,360.00 + 37% of excess over $661,350

Unmarried Individuals Other Than Surviving Spouses and Heads of Households (I.R.C. § 1(j)(2)(C), Rev. Proc. 2026-35 § 3.01, Table 3)

Taxable Income Bracket	Marginal Rate	Tax Calculation
Not over $12,800	10%	10% of taxable income
Over $12,800 to $52,025	12%	$1,280.00 + 12% of excess over $12,800
Over $52,025 to $109,125	22%	$5,987.00 + 22% of excess over $52,025
Over $109,125 to $208,325	24%	$18,549.00 + 24% of excess over $109,125
Over $208,325 to $264,550	32%	$42,357.00 + 32% of excess over $208,325
Over $264,550 to $661,375	35%	$60,349.00 + 35% of excess over $264,550
Over $661,375	37%	$199,237.75 + 37% of excess over $661,375

Married Individuals Filing Separate Returns (I.R.C. § 1(j)(2)(D), Rev. Proc. 2026-35 § 3.01, Table 4)

Taxable Income Bracket	Marginal Rate	Tax Calculation
Not over $12,800	10%	10% of taxable income
Over $12,800 to $52,025	12%	$1,280.00 + 12% of excess over $12,800
Over $52,025 to $109,125	22%	$5,987.00 + 22% of excess over $52,025
Over $109,125 to $208,325	24%	$18,549.00 + 24% of excess over $109,125
Over $208,325 to $264,550	32%	$42,357.00 + 32% of excess over $208,325
Over $264,550 to $396,825	35%	$60,349.00 + 35% of excess over $264,550
Over $396,825	37%	$106,645.25 + 37% of excess over $396,825

Estates and Trusts (I.R.C. § 1(j)(2)(E), Rev. Proc. 2026-35 § 3.01, Table 5)

Taxable Income Bracket	Marginal Rate	Tax Calculation
Not over $3,400	10%	10% of taxable income
Over $3,400 to $12,100	24%	$340.00 + 24% of excess over $3,400
Over $12,100 to $16,500	35%	$2,428.00 + 35% of excess over $12,100
Over $16,500	37%	$3,968.00 + 37% of excess over $16,500

Unearned Income of Minor Children (Kiddie Tax)

Under I.R.C. § 1(g) and Rev. Proc. 2026-35 § 3.02, the threshold amount used to calculate net unearned income subject to the “kiddie tax” is adjusted to $1,400. Rev. Proc. 2026-35 § 3.02 provides:

“For taxable years beginning in 2027, the amount in § 1(g)(4)(A)(ii)(I), which is used to reduce the net unearned income reported on the child’s return that is subject to the ‘kiddie tax,’ is $1,400. This $1,400 amount is the same as the amount provided in § 63(c)(5)(A), as adjusted for inflation. The same $1,400 amount is used for purposes of § 1(g)(7) to determine whether a parent may elect to include a child’s gross income in the parent’s gross income and to calculate the ‘kiddie tax.’ For example, one of the requirements for the parental election is that a child’s gross income is more than the amount referred to in § 1(g)(4)(A)(ii)(I) but less than 10 times that amount; thus, a child’s gross income for 2027 must be more than $1,400 but less than $14,000.”

Kiddie Tax Statutory Parameter	Code Section	2027 Amount
Unearned Income Excluded / Standard Deduction Base	I.R.C. § 1(g)(4)(A)(ii)(I), § 63(c)(5)(A)	$1,400
Parental Election Minimum Gross Income	I.R.C. § 1(g)(7)(A)(i)	Over $1,400
Parental Election Maximum Gross Income Limit	I.R.C. § 1(g)(7)(A)(ii)	Less than $14,000

Maximum Capital Gains Tax Rates

Long-term capital gains and qualified dividends are subject to preferential rates governed by I.R.C. § 1(h) and § 1(j)(5). Rev. Proc. 2026-35 § 3.03 details the revised zero percent and 15 percent maximum threshold amounts for 2027.

Filing Status	Maximum 0% Rate Amount	Maximum 15% Rate Amount
Married Filing Jointly & Surviving Spouses	$102,100	$633,600
Married Filing Separately	$51,050	$316,800
Head of Household	$68,350	$598,400
All Other Single Individuals	$51,050	$563,200
Estates and Trusts	$3,400	$16,750

Standard Deductions and Dependent Limitations

Under I.R.C. § 63(c) and Rev. Proc. 2026-35 § 3.15, standard deduction amounts increase across all filing statuses for 2027.

Filing Status	Code Section	2027 Standard Deduction
Married Filing Jointly & Surviving Spouses	I.R.C. § 63(c)(2)(A), § 1(j)(2)(A)	$33,200
Head of Household	I.R.C. § 63(c)(2)(B), § 1(j)(2)(B)	$24,925
Unmarried Individuals	I.R.C. § 63(c)(2)(C), § 1(j)(2)(C)	$16,600
Married Filing Separately	I.R.C. § 63(c)(2)(D), § 1(j)(2)(D)	$16,600

For dependents, I.R.C. § 63(c)(5) limits the standard deduction to the greater of (1) $1,400, or (2) $500 plus the individual’s earned income. Under I.R.C. § 63(f) and Rev. Proc. 2026-35 § 3.15(3), the additional standard deduction for aged or blind taxpayers is $1,700 ($2,100 if the taxpayer is unmarried and not a surviving spouse).

Alternative Minimum Tax (AMT) Exemptions and Phaseout Thresholds

Rev. Proc. 2026-35 § 3.11 updates the Alternative Minimum Tax (AMT) exemption amounts and exemption phaseout thresholds pursuant to I.R.C. § 55(d).

Filing Status	AMT Exemption Amount	Exemption Phaseout Threshold	Complete Phaseout Amount
Joint Returns & Surviving Spouses	$144,700	$1,031,900	$1,321,300
Unmarried Individuals	$93,000	$515,950	$701,950
Married Filing Separately	$72,350	$515,950	$660,650
Estates and Trusts	$32,500	$108,200	$173,200

Under I.R.C. § 55(b)(1), the 28 percent alternative minimum tax rate applies to excess alternative minimum taxable income above $252,500 ($126,250 for married individuals filing separately). Under I.R.C. § 59(j) and Rev. Proc. 2026-35 § 3.12, the AMT exemption for a child subject to the kiddie tax cannot exceed earned income plus $10,050.

Section 199A Qualified Business Income Deduction Thresholds

For taxable years beginning in 2027, Rev. Proc. 2026-35 § 3.28 updates the threshold and phase-in amounts under I.R.C. § 199A for taxpayers claiming the 20% Qualified Business Income (QBI) deduction.

Filing Status	Threshold Amount (I.R.C. § 199A(e)(2))	Phase-In Range Amount (I.R.C. § 199A(b)(3)(B))
Married Filing Jointly	$416,600	$566,600
Married Filing Separately	$208,325	$283,325
All Other Returns	$208,300	$283,300

In addition, pursuant to I.R.C. § 199A(i)(2)(A), the minimum aggregate QBI necessary to qualify as an “applicable taxpayer” is $1,030, and the minimum deduction amount under I.R.C. § 199A(i)(1)(B) for active qualified business income is $415.

Section 179 Expensing Limits and Energy Efficient Commercial Building Deductions

Under I.R.C. § 179(b)(1) and Rev. Proc. 2026-35 § 3.26, the maximum expensing limitation for qualifying depreciable property is increased to $2,640,000.

Section 179 Property Provision	Code Section	2027 Limitation
Maximum Aggregate Expensing Limitation	I.R.C. § 179(b)(1)	$2,640,000
Phase-Out Threshold Base Amount	I.R.C. § 179(b)(2)	$4,230,000
Sport Utility Vehicle Cost Limitation	I.R.C. § 179(b)(5)(A)	$33,100

Under Rev. Proc. 2026-35 § 3.27, for I.R.C. § 179D energy efficient commercial building deductions, the applicable base dollar value is $0.61 per square foot, increased (up to $1.23) by $0.02 for each percentage point reduction in energy costs over 25%. For qualifying property meeting higher labor standards under § 179D(b)(3), the base value is $3.07 (up to $6.13), increased by $0.12 per percentage point over 25%.

Family and Child Tax Credits

Rev. Proc. 2026-35 §§ 3.04 and 3.05 outline the adjusted parameters for the Child Tax Credit (I.R.C. § 24) and Adoption Credit (I.R.C. § 23).

Credit Provision	Code Section	2027 Amount
Child Tax Credit Maximum Per Child	I.R.C. § 24(a)	$2,300
Child Tax Credit Refundable Portion (Additional CTC)	I.R.C. § 24(d)(1)(A)	$1,800
Adoption Credit Special Needs / Maximum Expense Limit	I.R.C. § 23(a)(3), § 23(b)(1)	$18,250
Adoption Credit Refundable Portion	I.R.C. § 23(a)(4)	$5,280
Adoption Credit MAGI Phaseout Start Threshold	I.R.C. § 23(b)(2)(A)	$273,680
Adoption Credit MAGI Complete Phaseout Threshold	I.R.C. § 23(b)(2)(A)	$313,680
Adoption Assistance Program Maximum Exclusion	I.R.C. § 137(a)(2), § 137(b)(1)	$18,250

Earned Income Tax Credit Substantive Parameters

Section 3.06(1) of Rev. Proc. 2026-35 defines the core structural elements of the Earned Income Tax Credit (EITC) under I.R.C. § 32:

“The ‘earned income amount’ is the amount of earned income at or above which the maximum amount of the earned income credit is allowed. The ‘threshold phaseout amount’ is the amount of adjusted gross income (or, if greater, earned income) above which the maximum amount of the credit begins to phase out. The ‘completed phaseout amount’ is the amount of adjusted gross income (or, if greater, earned income) at or above which no credit is allowed.”

EITC Parameter	No Children	1 Child	2 Children	3+ Children
Earned Income Amount	$8,960	$13,450	$18,880	$18,880
Maximum Credit Amount	$685	$4,573	$7,552	$8,496
Joint Threshold Phaseout Amount	$18,730	$32,170	$32,170	$32,170
Joint Completed Phaseout Amount	$27,684	$60,787	$68,029	$72,512
Other Statuses Threshold Phaseout	$11,210	$24,660	$24,660	$24,660
Other Statuses Completed Phaseout	$20,164	$53,277	$60,519	$65,002

Under I.R.C. § 32(i) and Rev. Proc. 2026-35 § 3.06(2), the excessive investment income limit is adjusted to $12,600.

Executive, Employee, and Education Fringe Benefit Exclusions

Rev. Proc. 2026-35 adjusts multiple statutory dollar caps governing fringe benefits, cafeteria plans, and education assistance under Title 26.

Benefit Provision	Code Section	Rev. Proc. Section	2027 Exclusion / Limit
Educator Expense Deduction	I.R.C. § 62(a)(2)(D)	§ 3.13	$350
Health FSA Voluntary Salary Reduction Cap	I.R.C. § 125(i)	§ 3.16	$3,500
Health FSA Unused Carryover Maximum	I.R.C. § 125(i)	§ 3.16	$700
Educational Assistance Program Exclusion	I.R.C. § 127(a)	§ 3.17	$5,400
Qualified Transportation Transit & Commuter	I.R.C. § 132(f)(2)(A)	§ 3.18	$350 / month
Qualified Transportation Parking Limit	I.R.C. § 132(f)(2)(B)	§ 3.18	$350 / month
Savings Bond Higher Education Exclusion MAGI (Joint)	I.R.C. § 135	§ 3.19	$157,600 – $187,600
Savings Bond Higher Education Exclusion MAGI (Other)	I.R.C. § 135	§ 3.19	$105,100 – $120,100
Student Loan Interest Deduction Phaseout MAGI (Joint)	I.R.C. § 221(b)(2)(B)	§ 3.31	$180,000 – $210,000
Student Loan Interest Deduction Phaseout MAGI (Other)	I.R.C. § 221(b)(2)(B)	§ 3.31	$90,000 – $105,000
Medical Savings Account (Self-Only) Deductible Range	I.R.C. § 220(c)(2)(A)	§ 3.30(1)	$3,000 – $4,550
Medical Savings Account (Family) Deductible Range	I.R.C. § 220(c)(2)(A)	§ 3.30(2)	$6,050 – $9,050
QSEHRA Maximum Reimbursement (Self / Family)	I.R.C. § 9831(d)	§ 3.68	$6,700 / $13,550

Business Tax Accounting and Loss Limitations

Key operational statutory thresholds for corporate and partnership tax planning are updated in Section 3 of the Revenue Procedure. In particular, Section 3.32 sets forth the small business accounting threshold:

“For taxable years beginning in 2027, a corporation or partnership meets the gross receipts test of § 448(c) for any taxable year if the average annual gross receipts of such entity for the 3-taxable-year period ending with the taxable year which precedes such taxable year does not exceed $33,000,000.”

Business Tax Provision	Code Section	Rev. Proc. Section	2027 Threshold
Cash Method Gross Receipts Test	I.R.C. § 448(c)	§ 3.32	$33,000,000
Excess Business Loss Limit (Joint)	I.R.C. § 461(l)(3)(A)(ii)(II)	§ 3.33	$528,000
Excess Business Loss Limit (Single / Other)	I.R.C. § 461(l)(3)(A)(ii)(II)	§ 3.33	$264,000
Small Insurance Company Premium Cap	I.R.C. § 831(b)(2)(A)(i)	§ 3.38	$3,000,000
Small Business Stock Gain Exclusion Base	I.R.C. § 1202(b)(4)(B)	§ 3.42(1)	$15,480,000
Small Business Stock Aggregate Limit	I.R.C. § 1202(b)(4)	§ 3.42(2)	$77,390,000
Qualified Debt Instrument Limit	I.R.C. § 1274A(b)	§ 3.43	$7,704,600
Cash Method Debt Instrument Limit	I.R.C. § 1274A(c)(2)	§ 3.43	$5,503,300

International Tax and Foreign Income Exclusions

For cross-border tax practice, Rev. Proc. 2026-35 updates the statutory exclusions and reporting triggers under Subtitle A.

International Provision	Code Section	Rev. Proc. Section	2027 Amount
Foreign Earned Income Exclusion	I.R.C. § 911(b)(2)(D)(i)	§ 3.41	$137,300
Expatriation 5-Year Average Tax Threshold	I.R.C. § 877(a)(2)(A), § 877A(g)	§ 3.39	$218,000
Expatriation Mark-to-Market Income Exclusion	I.R.C. § 877A(a)(3)	§ 3.40	$940,000
Foreign Gift Reporting Threshold	I.R.C. § 6039F	§ 3.51	$21,240.31

Estate, Gift, and Generation-Skipping Transfer Tax Exclusions

The wealth transfer tax exclusions under Subtitle B receive notable inflation adjustments for calendar year 2027.

Estate & Gift Provision	Code Section	Rev. Proc. Section	2027 Exemption / Exclusion
Unified Basic Exclusion Amount	I.R.C. § 2010(c)(3), § 2505, § 2631	§ 3.44	$15,480,000
Special Use Valuation Maximum Reduction	I.R.C. § 2032A	§ 3.45	$1,500,000
Annual Gift Tax Exclusion	I.R.C. § 2503(b)	§ 3.46(1)	$20,000
Annual Gift Exclusion for Non-Citizen Spouse	I.R.C. § 2523(i)(2)	§ 3.46(2)	$201,000
Expatriate Covered Gifts / Bequests Threshold	I.R.C. § 2801(c)	§ 3.46(3)	$20,000
Estate Tax 2-Percent Portion under § 6166	I.R.C. § 6601(j)	§ 3.56	$2,010,000

Tax Practice, Information Reporting, and Penalty Provisions

Rev. Proc. 2026-35 updates statutory penalties and practice thresholds enforced during filing seasons. Regarding failure-to-file additions to tax, Section 3.57 states:

“In the case of any return required to be filed in 2028, the amount of the addition to tax under § 6651(a) for failure to file an income tax return within 60 days of the due date of such return (determined with regard to any extensions of time for filing) will not be less than the lesser of $555 or 100 percent of the amount required to be shown as tax on such return.”

In addition, Section 3.65 establishes the serious delinquency threshold for passport revocation:

“For calendar year 2027, a federal tax liability must be greater than $68,000 to be considered seriously delinquent tax debt under § 7345.”

Practice / Penalty Item	Code Section	Rev. Proc. Section	2027 / 2028 Penalty or Threshold
Failure to File Tax Return Minimum Penalty	I.R.C. § 6651(a)	§ 3.57	Lesser of $555 or 100% of tax
Return Preparer Failure Penalties (General)	I.R.C. § 6695(a)–(e)	§ 3.59	$65 per return (Max $34,500)
Preparer Negotiation of Check Penalty	I.R.C. § 6695(f)	§ 3.59	$690 per check (No limit)
Preparer Diligence Failure (Head of Household, CTC, EITC)	I.R.C. § 6695(g)	§ 3.59	$690 per failure (No limit)
Partnership Return Failure to File Penalty	I.R.C. § 6698(b)(1)	§ 3.60	$265 per partner / month
S Corporation Return Failure to File Penalty	I.R.C. § 6699(b)(1)	§ 3.61	$265 per shareholder / month
Information Return Failure (Large Business)	I.R.C. § 6721(a)(1)	§ 3.62(1)	$360 per return (Max $4,327,500)
Payee Statement Failure (Large Business)	I.R.C. § 6722(a)(1)	§ 3.63(1)	$360 per statement (Max $4,327,500)
Passport Revocation Delinquent Tax Debt Limit	I.R.C. § 7345	§ 3.65	Over $68,000
Attorney Fee Award Cap	I.R.C. § 7430(c)(1)(B)(iii)	§ 3.66	$270 per hour

Prepared with assistance from Gemini Notebook.