The think-tank said that less than one-sixth of the losses faced by households from the summer budget benefit cuts will be recouped by the introduction of the national minimum wage.
There are 8.4 million working households in the UK eligible for benefits of tax credits.
The IFS said that they would lose an average total of £750 per year once the tax cuts take effect and estimates that this group will gain an average of £200 a year from the national living wage.
The national living wage was announced by George Osborne in his Summer Budget in a bid to tackle the deficit by cutting benefits to low-paid workers.
Opposition MPs have branded George Osborne’s decision to remove billions of pounds of benefits and tax credits from poor workers as brutal.
From next April, employers must pay £7.20 an hour to workers over the age of 25, rising to £9 by 2020. The present minimum wage for over-21s is £6.50.
High street store Next has predicted that the introduction of higher wages will see its staffing costs rise by as much as £27m a year by 2020.
Lord Wolfston, Next’s chief executive, said the retailer will have to raise prices to offset the cost of the new minimum wage.
Several other UK retailers have predicted the new national living wage will have a negative impact on profit and could lead to job cuts and price rises.
David Potts, chief executives of Wm Morrison, said the cost of the living wage to the supermarket chain by market share would be “in the tens of millions – not single millions.”
CBI director general, John Cridland warned that the introduction of a higher national minimum wage is a “gamble”.
He said many CEOs feel they are forced to change their business models to accommodate the new living wage, which could result in less job and progression opportunities.
Whitbread, the owner of Premier Inn and Costa Coffee, is considering “selective” price rises across its chain of hotels, restaurants and coffee shops to cushion the predicted £15-20m additional pay burden.
Pub chain JD Wetherspoons weighed in saying the compulsory pay rise would “threaten the future of many more pubs.”
Employment group Manpower said the increased living wage could prompt employers to take on staff under the age of 25 who are not entitled to a wage increase.