Tuesday November 15th, 2016
It’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 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.
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.
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.
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: