- Social Security benefits will not see a cost-of-living increase for 2016.
- For those individuals receiving Social Security benefits prior to Full Retirement Age (FRA) for Social Security, the earnings limit remains at $15,720. For every $2 in earnings above the limit, $1 in SS benefits will be withheld.
- For new Medicare recipients, the cost of Medicare Part B is likely to be significantly higher. Because of the lack of a Cost-of-Living increase in existing SS benefits, many of those already on Medicare will not see an increase in their Part B premiums due to a long-standing hold harmless rule. Therefore, the increase in Medicare costs will have to be shouldered primarily by new Medicare recipients and high income recipients, unless Congress takes additional action to control these increases.
- For employees, Social Security and Medicare tax withholding are as follows:
- Social Security taxes will be withheld at a rate of 6.2% for employees up to a wage base of $118,500, or a maximum of $7,347 for 2016.
- Medicare taxes are withheld at a rate of 1.45% for employees for all wages, with no maximum wage base.
- The Medicare surtax will be withheld by employers for those employees whose wages exceed $200,000, at an additional .9% rate.
Gift and Estate
- Gifting Exclusion amount remains at $14,000 per person, per year. Gifts can also be made directly to organizations for education and medical expenses and do not count against this annual exclusion.
- Estate exclusion amount for those who die during 2016, has been increased to $5,450,000 per person. Spouses still have portability of unused deceased spousal exemption amounts.
Employer Plan Limits
- Defined Contribution Plan employee salary deferrals remain at $18,000 for 2016.
- Catch-up contributions for DC plans remain at $6,000 for those aged 50+.
- SIMPLE Plan contribution limits remain at $12,500, with an additional catch-up of $3,000, for those aged 50+.
- Total annual additions to Defined Contribution Plans and SEP IRA Plans of $53,000. Annual additions are comprised of employee salary deferrals, employer matches, and after-tax contributions.
- IRA/Roth IRA contribution limits remain at $5,500 for 2016, with an additional $1,000 catch-up for those aged 50+.
- Roth contribution eligibility experiences slight changes for 2016;
- Married Filing Joint eligibility phase-out occurs when modified AGI is between $184,000 and $194,000 for 2016. Roth contributions are ineligible for MAGI above $194,000.
- Single Filers eligibility phase-out occurs when Modified AGI is between $117,000 and $132,000. Roth contributions are ineligible for MAGI above $132,000.
Health Savings Accounts
Health Savings Account (HSA) contributions are permitted if you are covered by a High Deductible Health Plan for 2016 and are under the age of 65.
- A High Deductible Health Plan (HDHP) is one where the deductible is at least $1,300 for an individual, or at least $2,600 for a family.
- Maximum contributions to the HSA can total $3,350 for individuals or $6,750 for families. These totals are made up of both employee deferrals and employer contributions.
- If you are 55+ in 2016, you can defer an additional $1,000 to the HSA as a catch-up contribution.
Note: Although the Affordable Care Act allows parents to add their adult children (up to age 26) to their health plan, the IRS has not changed its definition of a dependent for Health Savings Accounts. This means that an employee, whose 24-year-old child is covered on his HDHP, is not eligible to use HSA funds to pay that child’s medical bills. Use the IRS resource to determine if your child meets the dependency rules.
Tax Filing Deadline
In observance of Emancipation Day on Friday, April 15, 2016, taxpayers will have until April 18, 2016, to file their 2015 individual returns and make their first 2016 estimated tax payment. Taxpayers in Maine and Massachusetts will have until April 19, 2016, to file their returns so they can observe Patriots Day on April 18.
This is not intended to be a list of all tax updates. For questions regarding your particular situation, consult a tax professional.