Overview
On Monday, November 27, 2017, the Social Security Administration announced that it is lowering the maximum amount of earnings subject to the Social Security tax for 2018 to $128,400. The Social Security Administration had previously announced the amount as $128,700. The revision is the result of updated wage data reported to Social Security. Our below article from October has been updated to reflect the lower amount.
On Monday, March 5, 2018, the Internal Revenue Service announced that, for calendar year 2018, the annual contribution limitation to a health savings account for an individual with family coverage under a high deductible health plan was decreased by $50 to $6,850. The Internal Revenue Service had previously announced the amount as $6,900. The revision was the result of the Tax Cuts and Jobs Act changing the inflation indexing measure from using the consumer price index to chained consumer price index. However, following industry pressure, the Internal Revenue Service increased the limit from $6,850 back to $6,900 in Revenue Procedure 2018-27 on April 26, 2018. This is the same amount that was originally announced in 2017. For more information please see our blog post on the HSA limit increase.
In Depth
Recently the Internal Revenue Service (IRS) and the Social Security Administration announced the cost-of-living adjustments to the applicable dollar limits on various employer-sponsored retirement and welfare plans and the Social Security wage base for 2018. The table below compares the applicable dollar limits for certain employee benefit programs and the Social Security wage base for 2017 and 2018.*
|
RETIREMENT PLAN LIMITS |
2017 |
2018 |
|
Annual compensation limit |
$270,000 |
$275,000 |
|
401(k), 403(b) & 457(b) before-tax contributions |
$18,000 |
$18,500 |
|
Catch-up contributions (if age 50 or older) |
$6,000 |
$6,000 |
|
Highly compensated employee threshold |
$120,000 |
$120,000 |
|
Key employee officer compensation threshold |
$175,000 |
$175,000 |
|
Defined benefit plan annual benefit and accrual limit |
$215,000 |
$220,000 |
|
Defined contribution plan annual contribution limit |
$54,000 |
$55,000 |
|
Employee stock ownership plan (ESOP) limit for determining the length of the general five-year distribution plan |
$215,000 |
$220,000 |
|
ESOP limit for determining the maximum account balance subject to the general five-year distribution period |
$1,080,000 |
$1,105,000 |
|
HEALTH AND WELFARE PLAN LIMITS |
|
|
|
Health Flexible Spending Accounts |
|
|
|
Maximum salary reduction limit |
$2,600 |
$2,650 |
|
High Deductible Health Plans (HDHP) and Health Savings Accounts (HSA) |
|
|
|
HDHP – Maximum annual out-of-pocket limit (excluding premiums): |
|
|
|
Self-only coverage |
$6,550 |
$6,650 |
|
Family coverage |
$13,100 |
$13,300 |
|
HDHP – Minimum annual deductible: |
|
|
|
Self-only coverage |
$1,300 |
$1,350 |
|
Family coverage |
$2,600 |
$2,700 |
|
HSA – Annual contribution limit: |
|
|
|
Self-only coverage |
$3,400 |
$3,450 |
|
Family coverage |
$6,750 |
$6,900 |
|
Catch-up contributions (age 55 or older) |
$1,000 |
$1,000 |
|
SOCIAL SECURITY WAGE BASE |
|
|
|
Social Security Maximum Taxable Earnings (dollars) |
$127,200 |
$128,400 |
Plan sponsors should update payroll and plan administration systems for the 2018 cost-of-living adjustments and should incorporate the new limits in relevant participant communications, like open enrollment materials and summary plan descriptions.
For further information about applying the new IRS employee benefit plan limits for 2018, contact your regular McDermott lawyer.
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* The dollar limits are generally applied on a calendar year basis; however, certain dollar limits are applied on a plan-year, tax-year, or limitation-year basis.
