401(k) Deferral, Over-50 Catch-Up Contribution Limits Unchanged for 2016 The IRS has announced that there are very few changes as a result of the cost-of-living adjustments applicable to dollar limits on benefits and contributions under qualified retirement plans, as well as other items, for tax year 2016 [IR-2015-118, 10-21-15; www.irs.gov/pub/irs-news/IR-15-118.pdf]. • The limitation on the exclusion for elective deferrals under §402(g)(1) (e.g., §401(k) and §403(b) plans) remains unchanged at $18,000. • The limit on annual additions to defined contribution plans under §415(c)(1)(A) remains unchanged at $53,000. • The limit on the annual benefit under a defined benefit plan contained in §415(b)(1)(A) remains unchanged at $210,000. • The annual compensation limit under §401(a)(17), §404(l), §408(k)(3)(C), and §408(k)(6)(D)(ii) remains unchanged at $265,000. • The compensation amount under §408(p)(2)(E) regarding elective deferrals to SIMPLE retirement accounts remains unchanged at $12,500. • The limitation under §457(e)(15) concerning elective deferrals to deferred compensation plans of state and local governments and tax-exempt organizations (§457(b) plans) remains unchanged at $18,000. • The limitation under §416(i)(1)(A)(i) concerning the definition of "key employee" in a top-heavy plan remains unchanged at $170,000. • The limitation under §414(v)(2)(B)(i) for catch-up contributions to §§401(k), 403(b), and 457(b) plans for individuals age 50 or over remains unchanged at $6,000; the limitation under §414(v)(2)(B)(ii) for catch-up contributions to an employer's SIMPLE plan for individuals age 50 or over remains unchanged at $3,000. • The limitation used in the definition of "highly compensated employee" under §414(q)(1)(B) remains unchanged at $120,000. • The compensation amount under §408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $600. • The compensation amount under federal regulation §1.61-21(f)(5)(i), concerning the definition of "control employee" for fringe benefit purposes, remains unchanged at $105,000. The compensation amount under §1.61-21(f)(5)(iii) remains unchanged at $215,000.
IRS Announces 2016 COLAs for Transportation Fringes, FSA Deferrals, Foreign Earned Income Exclusion, and More The IRS has released inflation-adjusted tables for 2016 reflecting any increases in the FSA deferral limit, foreign earned income exclusion, and excludable transportation fringes, among other changes [Rev. Proc. 2015-53, 10-21-15; https://www.irs.gov/pub/irs-drop/rp-15-53.pdf]. Qualified transportation fringes The amounts that may be excluded from gross income for employer-provided "qualified transportation fringe benefits" for 2016 are as follows: $255 per month for "qualified parking" (up from $250 in 2015), and $130 per month for "transportation in a commuter highway vehicle and any transit pass" (unchanged from 2015). Note that parity for mass transit benefits, which was retroactively extended by the Tax Increase Prevention Act of 2014, expired at the end of 2014 (see PAYROLL CURRENTLY, Issue No. 1, Vol. 23). Health flexible spending arrangements For plan years beginning in 2016, the dollar limitation under §125(i) on voluntary employee salary reductions for contributions to health flexible spending arrangements is $2,550 (unchanged from 2015). Standard deduction The standard deduction amounts for 2016 remain at $12,600 for married couples filing jointly or surviving spouses (unchanged from 2015), remain at $6,300 for single taxpayers and married taxpayers filing separately (unchanged from 2015), and increase to $9,300 for heads of household (up from $9,250 in 2015). Personal exemption The personal exemption amount for 2016 is $4,050 ($4,000 in 2015). Foreign earned income exclusion For 2016, the maximum foreign earned income exclusion amount under IRC §911(b)(2)(D)(i) is $101,300 ($100,800 in 2015). The maximum amount of the foreign housing cost exclusion is $14,182 ($14,112 in 2015). Medical Savings Accounts To be eligible to make contributions to a Medical Savings Account (or to have the employer make the contributions), an employee must be covered by a high deductible health plan. For 2016, a high deductible health plan is a plan with an annual deductible of $2,250-$3,350 for individual coverage ($2,200-$3,300 in 2015) and $4,450-$6,700 for family coverage ($4,450-$6,650 in 2015). Maximum out-of-pocket expenses can be no more than $4,450 for individual coverage (unchanged from 2015) and $8,150 for family coverage (unchanged from 2015). Long-term care insurance benefits If a long-term care insurance contract makes per diem benefit payments, the amount of the payments that is excluded from income in 2016 is capped at $340 per day ($330 in 2015). Adoption assistance For 2016, the maximum amount that can be excluded from an employee's gross income for qualified adoption expenses under an employer's adoption assistance program is $13,460 ($13,400 in 2015). The maximum amount that can be excluded in connection with the adoption of a child with special needs is $13,460 ($13,400 in 2015). The amount excludable from an employee's gross income begins to phase out for taxpayers with adjusted gross income of $201,920 ($201,010 in 2015) and is completely phased out for taxpayers with adjusted gross income of $241,920 ($241,010 in 2015). Pipeline construction industry per diem option For 2016, an eligible employer may pay certain welders and heavy equipment mechanics up to $17 per hour for rig-related expenses that will be deemed substantiated under an accountable plan (unchanged from 2015) and up to $11 per hour for fuel (unchanged from 2015), when paid in accordance with Rev. Proc. 2002-41 (2002-23 IRB 1098).
2016, Some Tax Benefits Increase Slightly Due to Inflation Adjustments, Others Are Unchanged IR-2015-119, Oct. 21, 2015
WASHINGTON — For tax year 2016, the Internal Revenue Service today announced annual inflation adjustments for more than 50 tax provisions, including the tax rate schedules, and other tax changes. Revenue Procedure 2015-53 provides details about these annual adjustments.
The tax items for tax year 2016 of greatest interest to most taxpayers include the following dollar amounts:For tax year 2016, the 39.6 percent tax rate affects single taxpayers whose income exceeds $415,050 ($466,950 for married taxpayers filing jointly), up from $413,200 and $464,850, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds for tax year 2016 are described in the revenue procedure.The standard deduction for heads of household rises to $9,300 for tax year 2016, up from $9,250, for tax year 2015.The other standard deduction amounts for 2016 remain as they were for 2015: $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly. The limitation for itemized deductions to be claimed on tax year 2016 returns of individuals begins with incomes of $259,400 or more ($311,300 for married couples filing jointly).The personal exemption for tax year 2016 rises $50 to $4,050, up from the 2015 exemption of $4,000. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $259,400 ($311,300 for married couples filing jointly). It phases out completely at $381,900 ($433,800 for married couples filing jointly.)The Alternative Minimum Tax exemption amount for tax year 2016 is $53,900 and begins to phase out at $119,700 ($83,800, for married couples filing jointly for whom the exemption begins to phase out at $159,700). The 2015 exemption amount was $53,600 ($83,400 for married couples filing jointly). For tax year 2016, the 28 percent tax rate applies to taxpayers with taxable incomes above $186,300 ($93,150 for married individuals filing separately).The tax year 2016 maximum Earned Income Credit amount is $6,269 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,242 for tax year 2015. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.For tax year 2016, the monthly limitation for the qualified transportation fringe benefit remains at $130 for transportation, but rises to $255 for qualified parking, up from $250 for tax year 2015.For tax year 2016 participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,250, up from $2,200 for tax year 2015; but not more than $3,350, up from $3,300 for tax year 2015. For self-only coverage the maximum out of pocket expense amount remains at $4,450. For tax year 2016 participants with family coverage, the floor for the annual deductible remains as it was in 2015 -- $4,450, however the deductible cannot be more than $6,700, up $50 from the limit for tax year 2015. For family coverage, the out of pocket expense limit remains at $8,150 for tax year 2016 as it was for tax year 2015.For tax year 2016, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $111,000, up from $110,000 for tax year 2015.For tax year 2016, the foreign earned income exclusion is $101,300, up from $100,800 for tax year 2015.Estates of decedents who die during 2016 have a basic exclusion amount of $5,450,000, up from a total of $5,430,000 for estates of decedents who died in 2015.