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Over past year, urban CPI rose just 0.2 percent before seasonal adjustments
Update: Social Security Wage Limit to Remain at $118,500
On Oct. 15, the Social Security Administration announced that there will be no increase in monthly Social Security benefit payments in 2016, and that the amount of wages subject to Social Security taxes will also remain unchanged at $118,500 next year. See the SHRM Online article Social Security Payroll Tax Threshold Unchanged for 2016.
Update: No Change in 401(k) Contribution Limits for 2016
On Oct. 21, the IRS announced there will be no increase in the annual contribution limits to 401(k) and similar defined contribution plans, and only a few minor changes in the limits and maximums for other retirement plans. See the SHRM Online article For 2016, 401(k) Contribution Limits Stay Put.
Contribution limits on 401(k) and flexible spending accounts (FSAs) are expected to remain the same in 2016, as evidenced by recent consumer price index (CPI) reports. The same is true for annual changes to the amount of income subject to Social Security payroll withholding (FICA), which also is subject to indexing each year based on U.S. inflation rate measures.
In regards to the closely watched 401(k) limits, “The IRS will release the official numbers by the end of October. But inflation has been very low this year, and due to rounding rules I project that, for the most part, the limits in 2016 will stay the same as in 2015,” Harry Sit, CEBS, who writes and blogs on financial matters, told SHRM Online. Under rounding rules, limits remained unchanged if statutory price-increase thresholds are not met.
Employees may contribute up to $18,000 to their 401(k) plans in 2015, with a higher total contribution limit from all sources (employer and employee) of $53,000. Those ages 50 and over may make an additional “catch-up” contribution of $6,000 this year. Sit said he thinks the odds are good these numbers will stay the same for 2016.
Richard Stover, a principal and actuary at Buck Consultants, believes that “based on current CPI information, the annual limit on contributions to health FSAs will remain at $2,550 for 2016.” While a sudden unexpected “rise in CPI could increase the health FSA limit to $2,600, that seems unlikely,” especially given that the CPI for All Urban Consumers (CPI-U) decreased 0.1 percent in August on a seasonally adjusted basis, as the U.S. Bureau of Labor Statistics reported in September. Over the last 12 months, the index rose just 0.2 percent before seasonal adjustments.
Income subject to FICA payroll tax increases will hold steady as well. Currently, the maximum amount of earnings subject to the Social Security tax is $118,500.
As with the 401(k) and FSA contribution limits for next year, the IRS officially announces the 2016 Social Security cost of living adjustment (COLA) in October. “However, for those who paid attention,” it was widely anticipated that there would be no COLA in 2016, Sit recently blogged. “Social Security COLA goes by the increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). That index has been lower in 2015 for eight months in a row than a year ago in 2014.”
One set of 2016 benefit contribution limits was previously released. The IRS issued its 2016 health savings account (HSA) contribution limits in May, based on an earlier cycle of CPI numbers. Contributions from all sources to HSAs linked to individual coverage will remain at $3,350 next year, the same as in 2015. But for HSAs linked to family coverage, the limit will increase by $100 to $6,750.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
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