The IRS has released the 2016 cost-of-living adjustments (COLAs) for a variety of tax-related limits, including limits relating to salary reductions under health flexible spending accounts (FSAs), qualified transportation fringe benefits, adoption assistance and the small business health care tax credit.
For 2016, the dollar limit on employee salary reduction contributions to health FSAs will not change and will remain $2,550.
Qualified Transportation Fringe Benefits
For 2016, the monthly limit on the amount that may be excluded from an employee’s income for qualified parking benefits will increase by $5 to $255. The combined monthly limit for transit passes and vanpooling expenses for 2016 will not change and will remain $130.
Adoption Assistance Exclusion and Adoption Credit
The maximum amount that may be excluded from an employee’s gross income under an employer-provided adoption assistance program for the adoption of a child will increase $60 to $13,460 for 2016. In addition, the maximum adoption credit allowed to an individual for the adoption of a child will also increase by $60 to $13,460 for 2016. Both the exclusion and the credit will begin to be phased out for individuals with modified adjusted gross incomes greater than $201,920 and will be entirely phased out for individuals with modified adjusted gross incomes of $241,920 or more (these income levels are both $910 higher than for 2015).
Small Business Health Care Tax Credit
For 2016, the average annual wage level at which the tax credit begins to phase out for eligible small employers will increase $100 to $25,900. The maximum average annual wages to qualify for the credit as an “eligible small employer” for 2016 will be twice this amount: $51,800 (a $200 increase from the 2015 amount).
Plan sponsors of benefits with limits that are changing (parking or adoption assistance) should review their plan documents to determine whether their plans automatically apply the new limits or must be amended if the plan sponsor wants to adopt the changes. Any changes should be communicated to employees.