Increased Health FSA Contribution Limit Included in IRS' 2015 Benefits Adjustments

Practical Law Legal Update 4-586-4825 (Approx. 5 pages)

Increased Health FSA Contribution Limit Included in IRS' 2015 Benefits Adjustments

by Practical Law Employee Benefits & Executive Compensation

Adjustments for Health FSAs, Fringe Benefits and More

In Revenue Procedure 2014-61, the IRS announced that for the 2015 tax year:

The annual dollar limit on employee salary reductions for contributions to health FSAs will be $2,550 (an increase of $50 from 2014) (see Practice Note, Cafeteria Plans).
The maximum credit allowed for the adoption of a child will be $13,400 (an increase of $210 from 2014). The adoption credit begins to be phased out for individuals with modified adjusted gross income of more than $201,010 (for 2014, this amount is $197,880), and is completely phased out for individuals with modified adjusted gross income of $241,010 or more (for 2014, this amount is $237,880 or more). Both phase-out adjustments are an increase of $3,130 over their 2014 counterparts (see Practice Note, Fringe Benefits: Adoption Assistance Programs).
The amount that can be excluded from an employee's gross income for the adoption of a child under an employer's adoption assistance program is $13,400 (an increase of $210 from 2014). As with the adoption credit, the exclusion begins to phase out for individuals with modified adjusted gross incomes of more than $201,010 (for 2014, this amount is $197,880), and is completely phased out for individuals with modified adjusted gross incomes of $241,010 or more (for 2014, this amount is $237,880 or more). Both phase-out adjustments are an increase of $3,130 over their 2014 counterparts (see Practice Note, Fringe Benefits: Adoption Assistance Programs).
The monthly limits for qualified transportation fringe benefits remain unchanged from 2014 as follows:
- the aggregate monthly limit for transit passes and transportation in a commuter highway vehicle is $130; and
- the monthly limit an individual can exclude for qualified parking is $250 (see Practice Note, Fringe Benefits under IRC Section 132: Qualified Transportation Benefits).
Regarding Archer medical savings accounts (Archer MSAs), for 2015 a high-deductible health plan, self-only coverage, is a health plan with an annual deductible that is:
- not less than $2,200 (unchanged from 2014); and
- not more than $3,300 (up from $3,250 for 2014).
Annual out-of-pocket expenses for covered benefits must not be more than $4,450 (up from $4,350 for 2014) (see Practice Note, Defined Contribution Health Plans: Overview: Archer Medical Savings Accounts (Archer MSAs)).
Also regarding Archer MSAs, for 2015 a high-deductible health plan, family coverage, is a health plan with an annual deductible that is:
- not less than $4,450 (up from $4,350 for 2014); and
- not more than $6,650 (up from $6,550 for 2014).
Annual out-of-pocket expenses for covered benefits must not be more than $8,150 (up from $8,000 for 2014).
Under the Affordable Care Act's (ACA's) small business health care tax credit, the maximum credit will be phased out based, in part, on an employer's average annual wages in excess of $25,800 for 2015 (an increase of $400 from 2014). The $25,800 amount also will be used in calculating who is an eligible small employer for the credit (see Practice Note, Small Business Health Care Tax Credit under the ACA).

Premium Tax Credit under the ACA Exchanges

The ACA includes a refundable tax credit (premium tax credit) for eligible individuals and families that purchase health insurance through an exchange (see Practice Note, Affordable Care Act (ACA) Overview). Taxpayers who meet certain criteria may have some or all of their estimated premium tax credit paid to the insurer in advance (advance credit payments). If a taxpayer's advance credit payments are more than the actual premium tax credit, the taxpayer owes the excess credit as a tax, subject to the following limits (which are subject to inflation adjustment for tax years beginning after 2014):

If household income is less than 200% of the federal poverty line, the limit is:
- $300 for unmarried individuals (other than surviving spouses and heads of household); and
- $600 for all other taxpayers.
If household income is more than 200%, but less than 300%, of the federal poverty line, the limit is:
- $750 for unmarried individuals (other than surviving spouses and heads of household); and
- $1,500 for all other taxpayers.
If the household income is more than 300%, but less than 400%, of the federal poverty line, the limit is:
- $1,250 for unmarried individuals (other than surviving spouses and heads of household); and
- $2,500 for all other taxpayers.

. The IRS will issue further guidance as necessary on the inflation adjusted items to assist in determining:

The premium assistance amount.
The contribution percentage for determining employer-sponsored minimum essential coverage.

Social Security Wage Base

On October 22, 2014, the Social Security Administration (SSA) announced that the Social Security taxable wage base for 2015 will increase to $118,500 (from $117,000 for 2014 and $113,700 for 2013).

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