Every company offers its employees different benefits and perks. For those business providing workers with 401(k) or other savings plans, it's important to know how much the government allows in terms of contributions. The IRS released these breakdowns toward the end of 2015. Let's take a closer look:
Caps in 2016: Most will stay the same
Information from the IRS focused on four programs, in particular: 401(k), 403(b), 457 and Thrift Savings. In 2015, the limit for employees utilizing these initiatives raised $500 – from $17,500 to $18,000. This cap will remain the same for 2016, as will the 401(k) catch up amount which is set at $6,000 for employees aged 50 and older.
The total contribution limit – for both workers and their employers – will hold steady at $53,000. The IRS also announced that individual contributions to Individual Retirement Arrangements (IRAs) will remain at $5,500 for the upcoming year.
This information wasn't the only news the IRS released that related to business benefits. The agency also issued updates on Medicare and Social Security.
Medicare and Social Security witness no changes
Both employees and their companies pay a portion of the Medicare Tax Rate which will remain at 1.45 percent for 2016. People whose annual salaries exceed a particular threshold will likely trigger the Additional Medicare Tax. Yearly compensation that is more than the following amounts will provoke the extra tax:
- $125,000 for married taxpayers who file separately.
- $200,000 for single and all other taxpayers.
- $$250,000 for married taxpayers who file together.
Social Security will also experience no increase in 2016. Employees and employers will still be subject to the 12.4 percent tax rate – split in two, which results in a 6.2 percent tax rate for each party. The maximum amount of wages subject to the Social Security Tax will remain at $118,500. As a result, anyone making or exceeding this amount will be able to make a $7347 contribution at most.
Companies that offer employees competitive savings, as well as Social Security and Medicare contributions should be aware of the changes to these programs as the years pass. The government keeps businesses well-informed of these updates, but it is the role of employers to remain compliant with these limits and the responsibility of human resources teams to ensure workers are cognizant of individual contributions and tax laws.