Take a look at our important news and updates for November 2015 - they are worth checking out. Find out the 2016 changes to tax benefits and retirement plan limits. Learn why there will be no social security benefit increase for 2016. And check out our section on holiday bonus know-how: 3 Guidelines for Employers as well as get more ideas on how to reward your employees.
2016 Changes to Tax Benefits and Retirement Plan Limits
The IRS has announced several inflation adjustments that affect tax-related items for employers and employees. Items that may be of particular interest for tax year 2016 include:
Limit on Health Flexible Spending Arrangement (FSA) Contributions. The annual dollar limit on employee contributions to employer-sponsored health FSAs remains unchanged at $2,550.
Small Business Health Care Tax Credit. The maximum amount of the small business health care tax credit is phased out based on the employer's number of full-time equivalent employees in excess of 10 (unchanged) and the employer's average annual wages in excess of $25,900 (up from $25,800 for 2015)
Qualified Transportation Fringe Benefits. The monthly limit on the value of the fringe benefit exclusion for transportation in a commuter highway vehicle and any transit pass remains unchanged at $130. The monthly limit for qualified parking increases to $255 (up from $250 for 2015).
Earned Income Credit. The maximum Earned Income Credit amount is $6,269 for taxpayers filing jointly who have 3 or more qualifying children (up from a total of $6,242 for tax year 2015).
Separately, the agency released cost-of-living adjustments affecting dollar limitations for retirement plans and related items for tax year 2016. Highlights include:
The contribution limit for employees who participate in 401(k), 403(b), and most 457 plans remains unchanged at $18,000.
The limit on annual contributions to an individual retirement arrangement (IRA) remains unchanged at $5,500.
No Social Security Benefit Increase for 2016
The Social Security Administration has announced that monthly Social Security and Supplemental Security Income (SSI) benefits will remain the same in 2016.
The Social Security Act provides for an automatic increase in Social Security and SSI benefits if there is an increase in inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). As determined by the Bureau of Labor Statistics, there was no increase in the CPI-W from the third quarter of 2014 to the third quarter of 2015. Therefore, under existing law, there can be no cost-of-living adjustment (COLA) in 2016.
Other adjustments that would normally take effect based on changes in the national average wage index also will not take effect in January 2016. Since there is no COLA, the maximum amount of earnings subject to the Social Security tax remains at $118,500 for 2016.
A fact sheet is available with more information on 2016 Social Security and SSI rates. Additional information regarding how the COLA is calculated is also available.
Holiday Bonus Know-How: 3 Guidelines for Employers
The end of the year is a traditional time for recognizing employees' contributions to your business. Whether you choose to give your employees a raise, a bonus, or a nonmonetary reward, it's important to let your employees know that you appreciate their hard work.
Choosing a Reward
While bonuses and pay raises are popular choices, there are plenty of other ways to show your appreciation. Be creative and consider other types of rewards such as a catered appreciation lunch, offering a paid shorter workday of the employee's choosing, or throwing a holiday or end-of-year party. Even a gesture of personally thanking employees for a job well done can go a long way towards keeping your team engaged and motivated.
Guidelines for Giving Rewards
Remember that even the best intentions can subject a company to liability if the employer is not careful. Consider the following tips to help you stay on track when rewarding your employees:
Be careful. Employers can generally decide whether or not to give employees a bonus or raise, but be careful about making any verbal or written commitments--even a casual mention of a bonus or raise could be construed as binding. And remember to check with your accountant or a financial professional about the tax implications of any rewards you plan to give.
Be clear. Communicate your company's reward policy to employees by including it in your new hire orientation materials or benefits package, and remind them of your policy when it's time to conduct performance reviews.
Be objective. When it comes to assessing eligibility for a pay increase or other benefits, ensure fairness and consistency by using a standard grading system to measure employee performance. Remember to document your reasons for offering a particular reward, including specific examples of performance.
Also keep in mind that federal nondiscrimination laws require that bonuses be provided on a nondiscriminatory basis. This means the eligibility criteria for bonuses must be applied in a nondiscriminatory way, and eligible employees must receive bonuses in nondiscriminatory amounts. (States may have their own requirements, so be sure to review your state's nondiscrimination laws.)
Check out one sheet on Motivating Employees for more ideas on rewarding your team members.