2015 Tax Law Changes
As individuals and companies plan for 2015, certain tax
issues must be considered in personal and business financial planning. Here is
a summary of changes to benefit plan contributions.
New Rules and Increased Limits
Withholding Rules. Income subject to FICA payroll tax has
changed for 2015. The maximum amount of earnings subject to the Social Security
tax is now $118,500, up from $117,000. According to the Social Security
Administration, about 10 million workers will pay higher taxes. However, actual
withholding amounts remain unchanged at 6.2 percent, for both employees and
employers, up to the taxable maximum.
Patient Protection and Affordable Care Act. This law allows
small employers to continue to offer their current health plans to employees
through December 31, 2015. In February 2014, the Internal Revenue Service
issued regulations clarifying that real estate sales agents are not treated as
employees for purposes of the Affordable Care Act. Therefore, many real estate
brokerage offices may never reach the number of employees required to trigger
ACA employer obligations.
For individuals with health flexible spending accounts, the
maximum contribution has been increased to $2,550.
401(k) Contribution Limits. When the IRS announced its 2015
adjustments, it noted that many plan limits will have a cost-of-living
adjustment bump-up based on the U.S. consumer price index.
401(k), 403(b), and profit-sharing plan elective deferrals
rose from $17,500 to $18,000. For employees age 50 and over, the catch-up contribution
limit rose from $5,500 to $6,000. The catch-up limit applies to those turning
50 at any time during the year.
Employer and employee defined contribution limits rose from
$52,000 to $53,000. Again, for those age 50 and over, the limit increased from
$57,500 to $59,000. This effectively means that an employee 50 years or older
can defer a total of $24,000 and the employer, through an employer match and
profit-sharing, can contribute up to $35,000.
The employee annual compensation limit for calculating
contributions has also risen from $260,000 to $265,000.
The limit used in the definition of a highly compensated
employee for the purpose of 401(k) nondiscrimination testing to determine if
all contributions can remain intact or whether some need to be returned because
the plan favors highly compensated individuals has also increased from $115,000
to $120,000. The compensation of “key employees” in a
top-heavy plan has remained unchanged at $170,000.
Defined Benefit Plans. Significantly fewer employers maintain
defined benefit plans, but for those who do, the maximum annual benefit that
may be funded remains at $210,000. For an employee who separated from service
before Jan. 1, 2015, the limit for defined benefit plans is computed by
multiplying the participant’s compensation limit, as adjusted through 2014, by 1.0178,
an increase from the prior year.
SIMPLE Plans. Savings incentive match plans, or SIMPLE,
retirement accounts are for employees of small companies. The maximum
contribution limit has increased from $12,000 to $12,500 and those age 50 and
over are allowed catch-up contributions of $3,000.
SEP Plans. Simplified employee pensions, or SEP, plans
provide small business owners with a broad range of compensation limits and
allow high earners to contribute a significant amount to retirement accounts.
The minimum compensation amount has been increased to $600 for 2015 and the
maximum compensation limit has been adjusted upward to $265,000.
Employee Stock Ownership Plans. Although the dollar amount
used to determine the lengthening of the five-year distribution period remains
unchanged at $210,000, the maximum account balance in the plan subject to a
five-year distribution period has been increased to $1,070,000.
Individual Retirement Accounts. The limit on annual IRA
contributions remains at $5,500 with a catch-up contribution for those age 50
and over at $1,000.
Traditional IRAs. The deductions for taxpayers making
contributions to a traditional IRA is phased out for singles and heads of
households who are covered by a workplace retirement plan if they have modified
adjusted gross incomes from $61,000 to $71,000. For married couples filing
jointly in which the spouse who makes the IRA contribution is covered by a
workplace retirement plan, the AGI phase out is from $98,000 to $118,000.
For an IRA contributor who is not covered by a workplace
retirement plan and is married to someone who is, the deduction has been phased
out when the AGI is from $183,000 to $193,000.
For a married person filing a separate return who is covered
by a workplace retirement plan, the phase-in range is $0 to $10,000.
Roth IRAs. The AGI phase-out range for taxpayers making
contributions to Roth IRAs is from $116,000 to $131,000 for singles and heads
of households, and $183,000 to $193,000 for married couples filing jointly. For
a married person filing a separate return, the phase-in range is $0 to $10,000.
Saver’s Credit. This is the retirement savings contributions
credit for low and moderate income workers and is available along with other
tax savings that may apply. The AGI limit has been increased to $61,000 for
married couples filing jointly, $45,750 for heads of households, and $30,500
for singles and married couples filing separately. The saver’s
credit helps offset part of the initial contribution workers voluntarily make
to 401(k) plans, similar retirement plans, or IRAs. The amount of the credit is
50 percent, 20 percent, or 10 percent of the annual retirement plan or IRA
contribution, up to $2,000 for singles and heads of households and $4,000 for
married couples filing jointly. The amount of the credit depends on the
The above summary is not exhaustive and there may be other
tax law changes that impact you or your business. Always consult with a tax professional
with specific questions since the laws and implementing regulations are subject
Mary Stark-Hood, JD, CFP, is president of the Hood Group,
Inc., and serves as a consultant to the CCIM Foundation. Contact her at firstname.lastname@example.org.