The Internal Revenue Service (IRS) has released Revenue Procedure 2017-58 and Notice 2017-64, which announce a number of cost-of-living adjustments for 2018. The Internal Revenue Code provides that various dollar amounts are to be adjusted each year, using certain rounding rules.
The amounts for 2018 are as follows:
- The dollar limitation on voluntary employee salary reductions for contributions to health flexible spending arrangements will be $2,650, up from $2,600.
- The monthly limit on fringe benefit exclusion for transit and parking will be $260, up from $255.
- The maximum exclusion for qualified adoption expenses furnished pursuant to an adoption assistance program will be $13,840, up from $13,570. The amount excludable from an employee’s gross income begins to phase out for taxpayers with modified adjusted gross income in excess of $207,580, up from $203,540, and is completely phased out for taxpayers with modified adjusted gross income of $247,580 or more, up from 243,540.
- The maximum reimbursement from a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) will be $5,050 for single coverage, up from $4,950, and $10,250 for family coverage, up from $10,050.
- The individual mandate penalty for failure to maintain minimum essential coverage remains the greater of $695 or 2.5% of household income in excess of the minimum filing requirement, with a maximum penalty equal to the national average price of a Bronze plan sold through the Marketplace.
- The maximum small business health care tax credit will be available to employers with 10 or fewer employees and average annual wages of $26,700 or less, up from $26,200. The small business health care tax credit phases out for employers with more than 25 employees and average annual wages of $53,400 or more, up from $52,400.
- The thresholds for determining who is a highly compensated employee or whether an officer is a key employee for purposes of cafeteria plan nondiscrimination testing remains unchanged at $120,000 and $175,000, respectively.
- The penalties for failing to file correct payee statements, such as W-2s and 1095-Cs are increasing from $260 per form to $270. Since the forms must be provided to both the employee and the IRS, the effective penalty is $540 per employee.
Detailed limits applicable to long-term care insurance were also announced.
Although new Medical Savings Accounts have not been allowed for many years, existing ones are allowed to continue and new limits were also announced for these.
Earlier this year, the IRS announced increased annual contribution amounts for Health Savings Accounts. The contribution limit for single coverage will be $3,450, up from $3,400 and the contribution limit for family coverage will be $6,900, up from $6,750.
Earlier this year, the IRS also announced a decrease in the affordability percentage, with the percentage declined from 9.69% to 9.56%.