Know your limits! IRS announces taxable benefit amounts for 2017 payroll planners

Tuesday November 15th, 2016

2017-Tax-LimitsIt’s that time of the year again – employers are preparing for payroll and benefit changes for 2017. The IRS issued dozens of tax provisions in Revenue Procedure 2016-55, including transportation, health savings accounts and flexible spending arrangement limits.

Transportation Benefits

Transportation amounts for 2017 will be unchanged from 2016. The monthly amount for tax-free employer-provided parking, transit passes, and van pool amounts remain $255.

States have yet to announce if they will differ from the federal limits in 2017. This will be something to watch, as several states did not conform to federal requirements in 2016.

For example, in Massachusetts and Wisconsin, monthly exclusion amounts in 2016 were $255 for employer-provided parking but only $130 for transit passes and van pools.

Meanwhile, New Jersey provides a more generous transportation benefit, allowing employees to exclude commuter transportation benefits provided by employers up to $3,060 per month in 2016.

Health Savings Accounts

The annual HSA contribution remained the same for families at $6,750, but it did increase slightly for individuals from $3,350 to $3,400.

The IRS did not change the annual minimum deductible or maximum out of pocket amount for self-only or family coverage in a health savings account. For a self-only plan, the minimum deductible stays at $1,300 and the maximum out-of-pocket remains at $6,550. The amounts for a family also remained the same at $2,600 and $13,100, respectively.

States have not announced if their laws relating to the taxation of HSAs will differ from federal limits in 2017. However, a few states did not conform to federal limits in 2016—specifically Alabama, California, and New Jersey.

In Alabama, HSAs established outside of Section 125 or 132 plans are taxable.

California differs from federal provisions in how to treat employer-provided coverage under accident or health plans, or medical expense reimbursements, to an employee's registered domestic partner—these payments are not subject to California withholding. Contributions to an employee's HSA are subject to California withholding.

In New Jersey, contributions to and distributions from other types of HSAs are not excluded from taxation.

Flexible Spending Arrangements

The IRS outlined the 2017 limits for tax-free flexible health spending arrangements in Notice 2016-62. The dollar limit under voluntary employee salary reductions for contributions to health flexible-spending arrangements increases to $2,600 from $2,550.

Other Changes for 2017

Annual inflation adjustments for 2017 that affect more than 50 tax provisions were released Oct. 25 by the IRS in a news release. Some inflation-adjusted items include:

  • The maximum amount that may be excluded from an employee's gross income for amounts paid or expenses incurred by an employer for qualified adoption expenses under an employee adoption-assistance program increases to $13,570 from $13,460.
  • Section 401(k) deferral limits for 2017 remain the same as in 2016 ($18,000).
  • The foreign earned-income exclusion amount under tax code Section 911(b)(2)(D)(i) increases to $102,100 from $101,300.
  • The standard deduction for heads of household increases to $9,350 from $9,300. The other standard deduction amounts for 2017 are $6,350 for singles and married couples filing separate returns (up from $6,300 in 2016), and $12,700 for married couples filing jointly (up from $12,600).