The Internal Revenue Service (IRS) and Social Security Administration have released the cost of living (COLA) adjustments that apply to dollar limitations set forth in certain IRS Code Sections. The Consumer Price Index rose enough since the third quarter of last year to warrant an increase in some, but not all, indexed figures for 2015.
Social Security and Medicare Wage Base
For 2015, the Social Security wage base increases to $118,500 from $117,000 in 2014. The Social Security rate of 6.2 percent is applied to wages up to the maximum taxable amount for the year; the Medicare portion of 1.45 percent applies to all wages.
In addition, starting with the 2013 taxable year, individuals are liable for a .9 percent “additional Medicare Tax” on all wages exceeding specific threshold amounts.
Indexed Compensation Levels
The indexed compensation level for determining who is considered highly compensated increased and remains unchanged for the key employee definition for 2015:
2012 2013 2014 2015
Highly Compensated Employee
$115,000 $115,000 $115,000 $120,000
Top Paid Group of 20 Percent
$115,000 $115,000 $115,000 $120,000
Key Employee, Officer
$165,000 $165,000 $170,000 $170,000
401(k) Plans
In 2015 the maximum for elective deferrals increased to $18,000 for 2015 from $17,500 in 2014. The catch-up contribution for those 50 or older increased to $6,000 for 2015 from $5,500 in 2014. That means if you are age 50 or over during the 2015 taxable year, you may generally defer up to $24,000 into your 401(k) plan.
Health FSA
We started tracking an additional indexed figure in 2013 for the annual limit for participant salary reductions for the health flexible spending account (FSA). For plan years starting on or after January 1, 2015, the participant salary reduction amount to the cafeteria plan’s health FSA portion of the plan may not exceed $2,550. This is a $50 increase. However, this does not preclude employer contributions (as long as they are not convertible to cash) from being added to participants’ health FSAs.
Adoption Credit
For 2015 this tax credit increases from $13,190 to $13,400. The credit starts to phase out at $201,010 of modified adjusted gross income (AGI) levels and is completely phased out when modified AGI reaches $241,010.
The exclusion from income provided through an employer or a Section 125 cafeteria plan for adoption assistance also has a $13,400 limit for the 2015 taxable year. Remember—a participant may take the exclusion from income and the tax credit if enough expenses are incurred to support both programs separately.
Health Savings Account (HSA) Minimum deductible amounts for the qualifying high-deductible health plan (HDHP) increased to $1,300 for self-only coverage and $2,600 for family coverage in 2015. Maximums for the HDHP out-of-pocket expenses increased to $6,450 for self-only coverage and $12,900 for family coverage.
Maximum contribution levels to an HSA also increased for 2015 to $3,350 for self-only coverage and $6,650 for family coverage. The catch-up contribution allowed for those 55 and over is set at $1,000 for 2015. Remember, there are two requirements in order to fund an HSA: You must have qualifying HDHP coverage and no other impermissible coverage (such as coverage under another employer’s plan or from a health flexible spending account that is not specifically compatible with an HSA).
Archer Medical Savings Account (MSA)
For high-deductible insurance plans that provide self-only coverage, the annual deductible amount must be at least $2,200 but not more than $3,300 for 2015. Total out-of-pocket expenses under plans that provide self-only coverage cannot exceed $4,450. For plans that provide family coverage in 2015, the annual deductible amount must be at least $4,450 but not more than $6,650, with out-of-pocket expenses that do not exceed $8,150.
Although new MSAs are not allowed, maximum contributions to existing MSAs that are attributable to single-coverage plans is 65 percent of the deductible amount. Maximum contributions for family coverage plans are limited to 75 percent of the deductible amount. MSA contributions must be coordinated with any HSA contributions for the taxable year and cannot exceed the HSA maximums.
Dependent and/or Child Daycare Expenses
Just a reminder that although the daycare expense limit associated with a cafeteria plan is not indexed, the tax credit available through a participant’s tax filing was raised in 2003. The daycare credit must be filed on Form 2441 and attached to the 1040 tax filing form. Limits for daycare credit expenses are $3,000 of expenses covering one child and $6,000 for families with two or more children. If one of the parents is going to school full time or is incapable of self-care, the non-working spouse would be “deemed” as earning $250 per month for one qualifying child and $500 for two or more qualifying children. This “deemed” earned income is used whether a person is using the employer’s cafeteria plan or taking the daycare credit.
The cafeteria plan daycare contribution limit is $5,000 for a married couple filing a joint return or for a single parent filing as “Head of Household.” For a married couple filing separate returns, the limit is $2,500 each. The daycare credit is reduced dollar-for-dollar by contributions to or benefits received from an employer’s cafeteria plan. An employee may participate in his employer’s cafeteria plan and take a portion of the daycare expenses through the credit if he has sufficient expenses in excess of his cafeteria plan annual election but within the tax credit limits.
Commuter Accounts
For 2015 the monthly parking amount remains the same at $250. The 2015 monthly limit for transit also remains the same at $130.
Long Term Care
For a qualified long term care insurance policy, the maximum non-taxable payment remains at $330 per day for 2015.
Finally, by participating in a cafeteria plan, the participant will be lowering his income for the Earned Income Tax Credit (EITC). Check out the new limits in IRS Publication 596 “Earned Income Credit” and for more information about this tax credit.
The information contained in this article is not intended to be legal, accounting, or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.
