Tax Tip Tuesday: What You Need to Know for 2016
For the past couple of months, we've been informing you of important tax law updates and information for 2016. In this post you will find information on all those topics in one place.
Health Savings Account Limits
The IRS has provided the annual inflation-adjusted contribution, deductible, and out-of-pocket expense limits for 2016 for health savings accounts (HSAs). Eligible individuals may, subject to statutory limits, make deductible contributions to an HSA.
For calendar year 2016, the limitation on deductions is
$3,350 for an individual with self only coverage (no change from 2015)
$6,750 for an individual with family coverage under a HDHP (up from $6,650 for 2015)
Each of these amounts is increased by $1,000 if the eligible individual is age 55 or older
For calendar year 2016, a HDHP is a health plan with an annual deductible that is not less than $1,300 (no change from 2015)
$2,600 for self-only coverage or (no change from 2015)
Do not exceed $6,550 for family coverage, and with respect to which the annual out-of-pocket expenses, such as deductibles, co-payments, and other amounts, but not premiums (up from $6,450 for 2015)
For self-only coverage or $13,100 for family coverage (up from $12,900 for 2015).
2016 Social Security Wage Base
The Social Security Administration has announced that the wage base for computing the Social Security tax (OASDI) in 2016 will remain at $118,500, unchanged from 2015.
For 2016, the FICA tax rate for employers is 7.65% each—6.2% for OASDI and 1.45% for HI.
For 2016, an employee pays all of the following:
6.2% Social Security tax on the first $118,500 of wages (maximum tax is $7,347.00 (6.2% of $118,500)).
1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return).
2.35% Medicare tax (regular 1.45% Medicare tax + 0.9% additional Medicare tax) on all wages in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return).
For 2016, the self-employment tax imposed on self-employed people is:
12.4% OASDI on the first $118,500 of self-employment income, for a maximum tax of $14,694.00 (12.40% of $118,500).
Plus 2.90% Medicare tax on the first $200,000 of self-employment income ($250,000 of combined self-employment income on a joint return, $125,000 on a separate return).
Plus 3.8% (2.90% regular Medicare tax + 0.9% additional Medicare tax) on all self-employment income in excess of $200,000 ($250,000 of combined self-employment income on a joint return, $125,000 for married taxpayers filing a separate return).
2016 Retirement Plan Dollar Limits
The IRS has announced the 2016 cost of living adjustments for retirement plans. All of the following are unchanged for 2016 since the increase in the cost-of-living index didn't meet the statutory thresholds that trigger their adjustment.
The limitation on the annual benefit under a defined benefit plan remained unchanged at $210,000.
The limit on the annual additions to a participant's defined contribution account remained unchanged at $53,000.
The maximum amount of annual compensation that can be taken into account for various qualified plan purposes remained unchanged at $265,000.
The limit on the exclusion for elective deferrals remained unchanged at $18,000. This limitation affects elective deferrals to Section 401(k) plans, Section 403(b) plans, and the Federal Government's Thrift Savings Plan. The limit on catch up contributions for those plans also remained unchanged at $6,000.
The maximum amount of compensation an employee may elect to defer for a SIMPLE plan remained unchanged at $12,500. The limit on catch up contributions for those plans remained unchanged at $3,000.
2016 Inflation Adjusted Tax Changes
Today we will address some inflation adjusted tax changes for 2016.
For gifts made and estates of decedents dying in 2016, the exclusion amount will be $5,450,000 up from $5,430,000 from 2015.
For gifts made in 2016, the gift tax annual exclusion will be $14,000, which is the same as 2015.
For 2016, the credit allowed for an adoption of a child with special needs will be $13,460, which is up from $13,400 in 2015.
The maximum credit allowed for other adoptions will be the amount of qualified adoption expenses up to $13,460, that's up from $13,400 in 2015.
We will be back with a new edition of Tax Tip Tuesday on November 17th
Disclaimer: The items included in the Tax Tip Tuesday Video Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation. IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advise contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein