IRS Announces Employee Benefits Limits for 2016

Wednesday, October 28, 2015

The Internal Revenue Service has recently announced whether there will be cost-of-living adjustments applicable to dollar limitations for retirement plans (and other items) for 2016. Many of the limitations will not change for 2016 because the increase in the cost-of-living index did not meet the statutory thresholds that trigger their adjustment.

I. Retirement Plans

Some of the annual limits for 2016 (and the current limits for 2015) are as follows:

  2016 2015
Elective Deferral Limit (for Internal Revenue Code ("Code") Section 401(k), 403(b), 457(b)(2), 457(c), and SARSEP plans) - excluding catch-up contributions $18,000 $18,000
Elective Deferral Limit for SIMPLE plans $12,500  $12,500 
Catch-up Contribution Limit for Code Section 401(k), 403(b), 457(b) and SARSEP plans $6,000  $6,000 
Catch-up Contribution Limit for SIMPLE plans  $3,000  $3,000 
Annual limitation for defined contribution plans under Code Section 415  $53,000  $53,000 
Annual limitation for defined benefit plans under Code Section 415 $210,000  $210,000 
Maximum compensation limit  $265,000  $265,000 
Minimum dollar threshold to be considered highly compensated employee (“HCE”) based on compensation  $120,000  $120,000 
Minimum dollar threshold for an officer of the employer to be considered a key employee for top heavy plans  $170,000  $170,000 
Maximum Social Security taxable earnings (OASDI only)  $118,500  $118,500 
Maximum Medicare taxable earnings (HI only)  No Limit(1)  No Limit 
Minimum compensation amount to be eligible for coverage under SEP  $600  $600 

(1) The Medicare tax rate is 1.45% on wages (for employees) and 2.90% on self-employment income (for self-employed individuals). However, the Patient Protection and Affordable Care Act imposes an additional .9% Medicare tax on wages and self-employment income for tax years beginning after December 31, 2012. The additional tax applies to individuals with compensation in excess of certain threshold amounts ($200,000 for single taxpayers, $250,000 for married taxpayers filing a joint return, and $125,000 for married couples filing separate returns). The new Medicare tax rate on wages and self-employment income in excess of the threshold amounts is 2.35% for employees and 3.8% for self-employed individuals.


II. Health Savings Accounts (HSAs)

The new annual HSA (and High Deductible Health Plan (HDHP)) limits for 2016 (and the current limits for 2015) are as follows:


  2016 2015
HSA Contribution Limits:    
     Self-only $3,350  $3,350 
     Family  $6,750  $6,650 
     Catch-up (for individuals age 55 or older)  $1,000  $1,000 
HDHP Minimum Deductible:     
     Self-Only  $1,300  $1,300 
     Family  $2,600  $2,600 
HDHP Out-of-Pocket Expense Limit (Deductibles, co-payments and other amounts, but not premiums)(2):     
     Self-Only  $6,550  $6,450 
     Family  $13,100  $12,900  

(2) The HDHP out of pocket maximums for HSA/HDHP plans are lower than the Patient Protection and Affordable Care Act (“ACA”) out of pocket maximums. For 2016, the ACA’s out of pocket maximum is $6,850 for self-only coverage and $13,700 for family coverage. Employers offering HSA/HDHP plans will need to ensure they satisfy the lower Internal Revenue Service HDHP out of pocket maximums. 

III. Health Flexible Spending Accounts

The annual limit for 2016 for employee contributions to a health flexible spending account will remain the same as the 2015 annual limit - $2,550.

If you have questions regarding the Internal Revenue Service limits or other employee benefits matters, please contact your regular Butzel Long attorney, a member of the Butzel Long Employee Benefits Practice Group, or the author of this e-mail news alert.

Thomas L. Shaevsky

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