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IRS Issues Cost of Living Updates for 2015

IRS Issues Cost of Living Updates for 2015

As taxpayers prepare for the upcoming new year, the Internal Revenue Service (“IRS”) has issued its annual cost of living updates. These amounts affect all taxpayers, from business to individual filers, and range from pension plan limits to individual exemption and standard deduction amounts. The items noted below are some of the more significant adjusted figures for the 2015 tax year. While a number of items have been adjusted by the IRS for the cost of living, it is important to note that some items have remained the same.

What has Changed?

  • Under the small business healthcare tax credit, the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of ten and the employer’s average annual wages in excess of $25,800 for tax year 2015, up from $25,400 for 2014.
  • The maximum earnings subject to the Social Security component of the FICA tax will increase to $118,500 in 2015 from $117,000 in 2014.
  • The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) will be $2,550; an increase of $50 from the 2014 amount.
  • The elective deferral (contribution) limit for employees who participate in Internal Revenue Code (“IRC”) §401(k), §403(b), most §457 plans, and the federal government’s Thrift Savings plan is increased from $17,500 to $18,000.
  • The catch-up contribution limit for employees aged 50 and over who participate in IRC §401(k), §403(b), most §457 plans, and the federal government’s Thrift Savings Plan is increased from $5,500 to $6,000.
  • The limitation for defined contribution plans under IRC §415(c)(1)(A) is increased in 2015 from $52,000 to $53,000.
  • The limitation under IRC §408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $12,000 to $12,500.
  • The standard mileage rates for the use of a car, van, pickup or panel truck will be 57.5 cents per mile for business miles driven. The standard mileage rate will be 23 cents per mile driven for medical or moving purposes.
  • The tax rate of 39.6% affects married taxpayers filing a joint return whose income exceeds $464,850 and single taxpayers whose income exceeds $413,200.
  • The limitation for itemized deductions to be claimed on tax year 2015 returns of married taxpayers filing a joint return begins with income of $309,900 or more (single taxpayers begins with income of $258,250 or more).
  • The personal exemption for tax year 2015 increases to $4,000, up from the exemption amount of $3,950. The exemption phase-out begins with income of $309,900 or more for married taxpayers filing a joint return (single taxpayers begins with income of $258,250 or more).

What has not Changed?

  • The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains at $1,000.
  • Effective January 1, 2015, the limitation on the annual benefit under a defined benefit plan under IRC §415(b)(1)(A) remains unchanged at $210,000.
  • The annual exclusion for gifts remains at $14,000 for 2015.
  • Qualified transportation benefits remain unchanged after increasing in 2014. Employees will still be able to exclude up to $250 per month for qualified parking expenses and up to $130 a month for the combined value of transit passes and transportation in a commuter highway vehicle.

For a complete list of 2015 inflation adjusted and other important tax figures and items including, but not limited to, updated 2015 tax tables, personal exemptions, alternative minimum tax exemptions and adoption credit exclusions, please refer to Revenue Procedure 2014-61 which can be accessed at http://www.irs.gov/pub/irs-drop/rp-14-61.pdf.


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The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals for your individual facts and circumstances.

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