May 12, 2016 – Sometimes small changes get overlooked. Here’s a reminder that the Social Security Administration (SSA) and IRS made cost-of-living adjustments (COLAs) that will apply to the Social Security tax and retirement plan contribution limits for 2016. Because the Consumer Price Index increased only minimally over the past year, few adjustments were made.

Social Security Wage Base

Wages and self-employment compensation are subject to a 6.2% Social Security tax. The tax is payable by both the employee and the employer, combining for a total tax rate of 12.4%. The self-employed pay both portions of the tax.

The tax applies only to wages and self employment compensation up to an annually-adjusted wage base. For 2016, the Social Security wage base will remain unchanged at $118,500.

Contributions to Employer-Sponsored Plans

Similarly, most contribution limits for retirement plans remain unchanged.

401 (k), 403(b), and most 457 plans. The limits for elective deferrals and “catch-up” contributions (for those 50 and older) remain at $18,000 and $6,000, respectively.

“Annual additions” limit for defined contribution plans. This limit generally provides a cap on the combined contributions of the employer and employee in a defined contribution plan (such as a 40l(k) plan or a basic profit sharing plan). The limit remains unchanged at $53,000.

SIMPLE IRAs. The general limits on employee contributions and catch-up contributions remain at $12,500 and $3,000, respectively.

Individual retirement accounts (IRAs). The limits for contributions and catch-up contributions to both traditional and Roth IRAs remain unchanged at $5,500 and $1,000, respectively.

Individuals who contribute to traditional IRAs and have access to a workplace retirement plan (whether their own or through their spouse’s plan) will see minor changes in the income-level phaseouts that apply for purposes of making deductible contributions.

• For single taxpayers and heads of household who are covered by a retirement plan at work, the deduction is phased out once modified adjusted gross income (MAGI) is between $61,000 and $71,000 (unchanged from 2015).
• For married couples filing jointly when the spouse contributing to the IRA is also covered by a workplace retirement plan, the deduction is phased out once joint MAGI is between $98,000 and $118,000 (unchanged from 2015).
• For married couples filing jointly when the spouse contributing to the IRA is not the spouse with the workplace retirement plan, the deduction is phased out once joint MAGI is between $184,000 to $194,000 (up from $183,000 and $193,000 in 2015).

Similarly, the income phaseout levels for Roth IRA contributions have also increased.

• For single taxpayers and heads of household, the income phaseout range is $117,000 to $132,000 (up from $116,000 to $131,000 for 2015).
• For married couples filing jointly, the income phaseout range is $184,000 to $194,000 (up from $183,000 to $193,000 for 2015) $194,000 (up from $183,000 and $193,000 in 2015).

Have Questions?

We’re here to help sort this out with you. Please don’t hesitate to contact your Dopkins Tax Advisor, or email Robert Pollock at rpollock@dopkins.com.