It’s that time of year again – when the IRS announces the eagerly-anticipated limits for flexible savings accounts, medical savings accounts, qualified transportation benefits and a variety of other employee benefits and perks that enjoy favorable tax treatment.
Flexible Savings Accounts (FSAs)
The limit on voluntary employee salary reductions for FSA contributions is $2,550. That represents no change compared to 2015. However, employers and employees alike should be aware that the so-called ‘use it or lose it’ rules have been relaxed recently. The IRS recently permitted employers to allow workers with unused FSA balances at the end of the year to carry over up to $500 to pay medical expenses in the next tax year, and still be able to contribute the maximum to the plan. Alternatively, plan sponsors may allow employees a grace period of up to two and a half months into the next year to use their unused flexible savings account balances. However, they cannot do both the grace period and the $500 dollar rollover. It must be one or the other.
The carryover provision has proven popular: According to research from the Society for Human Resources Management and WageWorks, 60 percent of employers with FSAs allow the FSA carryover for their workers.
Employees may tap their flexible savings accounts, tax-free, to pay for insurance co-pays, vision costs, eye exams and glasses, dental car and prescription drugs. However, thanks to the Affordable Care Act, over-thecounter drugs are no longer eligible for FSA dollars.
Adoption Assistance Programs.
There has been a modest increase in the amount of money excludable from an employee’s 2016 income, from $13,400 to $13,460. This amount is the same for both regular and special needs adoptions. This allowance, however, is phased out based on income. The phaseout begins at an income of $201,920 and phases out entirely at $241,920. Both thresholds represent an increase versus the 2015 limits of $201,010 and $241,010, respectively.
Section 213 Long Term Care Insurance Premiums
The government has established new guidelines for the amount of long term care premiums that qualify as medical expenses for tax year 2013. The new thresholds are as follows:
Age 40 or younger: $390
40-49: $730
50-59: $1,460
60-70: $3,900
Over 70: $4,870
Health Savings Accounts And High-Deductible Health Plans (HSAs and HDHPs)
For taxpayers who are enrolled in high deductible health plans (HDHPs), the minimum allowable deductible in these plans is $1,300 for individuals and $2,600 for family plans. Those who are eligible to participate in high deductible health plans may also make tax-deductible contributions to health savings accounts (HSAs). For 2016, the maximum allowable deductible health savings account contribution is $3,350 for individuals and $6,750 for families.
Medical Savings Accounts (Not Health Savings Account Plans)
For single individuals, annual deductible for MSA high-deductible health plans cannot be less than $2,250, nor more than $3,350. For married/family plans, the allowable minimum and maximum deductibles are $4,450 and $6,700, respectively.
Maximum out-of-pocket expenses in MSA-compatible plans are likewise limited to $4,450 for individual plans and $8,150 for family coverage.
Transportation Benefits
In 2015, the maximum monthly tax-exclusion for money that employers spent on public transit passes and vanpool benefits for employees changed from $250 to $130, while the exclusion for qualified parking benefits remained at $250. This changed on December 18th when the President signed into law the Consolidated Appropriations Act. Beginning in 2016, the monthly maximum tax exclusion for transit and parking benefits will each be $255 and will be adjusted annually for inflation.
Catherine oversees UBF's daily operations and client retention strategy. She has a background in mathematics, economics, and human resources. In her spare time, she enjoys spending time with her family, taking the dog on long walks, and caring for a small and unfruitful garden.