Social Security Payroll Tax Threshold remaining the same for 2016
On October 15, 2015, the Social Security Administration (SSA), announced that there will be no increase in the monthly social security benefits for 2016. Also, they announced that the maximum amount of wages that can be taxed for Social Security will remain the same ($118,500).
Each year, the Social Security Administration calculates the cost of living adjustment (COLA), which is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is a broad measure of consumer prices that are generated by the Bureau of Labor Statistics.
Currently, Social Security is financed by a 12.4% tax on wages up to the annual threshold, with half paid by works and the other half employers. The threshold usually goes up, but for 2016, it will stay at $118,500.
401k Contribution Limits Stay the same for 2016
With the cost of living index not meeting the thresholds for an adjustment, the 401k contribution retirement plans and defined benefit pension plans will stay the same. The IRS officially announced this on October 21, 2015.
The following adjustments will take effect on January 1, 2016
· 401(k), 403(b) and profit-sharing plan elective deferals stays at $18,000.
· The catch-up contribution limit for participants age 50 or older stays at $6,000. (The catch-up limit applies from the start of the year to those turning 50 at any time during the year.)
· The annual defined contribution limit from all sources (employer and employee) stays at the lessor of $53,000 (plus $6,000 catch-up if age 50 or older) or 100 percent of the employees compensation.
· The amount of employee compensation that can be considered in calculating contributions to defined contribution plans remains at $265,000.
· The limit used in the definition of a highly compensated employee for the purpose of 401(k) nondiscrimination testing remains at $120,000.