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IRS Issues Pension Plan Limitations & Tax Benefits Adjustments for 2018

IRS Issues Pension Plan Limitations & Tax Benefits Adjustments for 2018

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As taxpayers prepare for 2018, the Internal Revenue Service (“IRS”) has issued its annual pension plan limitations and tax benefits adjustment 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 2018 tax year. While a number of items have been adjusted by the IRS for the cost of living, it is important to note that many items have remained the same. It is also extremely important to note that many of these items may be superseded by the proposed tax reform.

What has Changed?

  • 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 increases from $18,000 in 2017 to $18,500.
  • The current top tax rate of 39.6% affects married taxpayers filing a joint return whose income exceeds $480,050 and single taxpayers whose income exceeds $426,700.
  • The limitation for itemized deductions to be claimed on tax year 2018 returns of married taxpayers filing a joint return begins with income of $320,000 or more (single taxpayers begins with income of $266,700 or more).
  • The personal exemption for tax year 2018 increases to $4,150. The exemption phase-out begins with income of $320,000 or more for married taxpayers filing a joint return (single taxpayers begins with income of $266,700 or more). It phases out completely at $442,500 for married taxpayers and $389,200 for single taxpayers.
  • The alternative minimum tax exemption amount for 2018 has increased to $86,200 for married taxpayers filing a joint return, with phase out beginning at $164,100. The amount for single taxpayers is $55,400 with phase out set to begin at $123,100.
  • The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) has increased from $2,600 in 2017 to $2,650 in 2018.
  • The maximum earnings subject to the Social Security component of the FICA tax will increase to $128,400 in 2018 from $127,200 in 2017. Please note that this amount for 2018 is a change from the amount previously reported by the IRS earlier this year of $128,700.
  • The limitation for defined contribution plans under IRC §415(c)(1)(A) is increased from $54,000 in 2017 to $55,000 in 2018.

What has not Changed?

  • The limit on annual contributions to an IRA remains at $5,500 in 2018. The annual catch up contribution limit also remains the same for 2018 at $1,000.
  • 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 remains the same at $6,000.
  • The limitation under IRC §408(p)(2)(E) regarding SIMPLE retirement accounts remains the same at $12,500.

For a complete list of 2018 inflation adjusted and other important tax figures and items including, but not limited to, updated 2018 tax tables, personal exemptions, adoption credit exclusions and various penalties for failure to file and failure to file correct returns please refer to Revenue Procedure 2017-58 which can be accessed here.

Once again, as a final reminder, there are provisions in the House and Senate bills related to tax reform that will cause a change in some of the amounts outlined above.

For more information, fill out the form below and a member of our Healthcare Services team will respond.

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lgnesin@withum.com

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