The IRS has announced several inflation adjustments that affect tax-related items for employers and employees. Items that may be of particular interest for tax year 2016 include:
- Limit on Health Flexible Spending Arrangement (FSA) Contributions. The annual dollar limit on employee contributions to employer-sponsored health FSAs remains unchanged at $2,550.
- Small Business Health Care Tax Credit. The maximum amount of the small business health care tax credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 (unchanged) and the employer’s average annual wages in excess of $25,900 (up from $25,800 for 2015).
- Qualified Transportation Fringe Benefits. The monthly limit on the value of the fringe benefit exclusion for transportation in a commuter highway vehicle and any transit pass remains unchanged at $130. The monthly limit for qualified parking increases to $255 (up from $250 for 2015).
- Earned Income Credit. The 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).
Separately, the agency released cost-of-living adjustments affecting dollar limitations for retirement plans and related items for tax year 2016. Highlights include:
The contribution limit for employees who participate in 401(k), 403(b), and most 457 plans remains unchanged at $18,000.
- The catch-up contribution limit for those aged 50 and over also remains unchanged at $6,000.
- The limit on annual contributions to an individual retirement arrangement (IRA) remains unchanged at $5,500.
Visit our employee benefits section within the Client Resource Center Library to learn more about retirement planning and the tax consequences of various employer-provided fringe benefits.