Annual Inflation Adjustments for Fringe Benefits and Income Taxes Released by IRS
Author: Rena Pirsos, XpertHR Legal Editor
October 27, 2016
The IRS has released Revenue Procedure 2016-55, which provides the annual inflation adjustments to the employer-provided fringe benefit limitations and personal income tax-related amounts. Although many of the amounts will increase for tax year 2017, others, such as employer-provided parking and mass transit benefit limits, will remain at 2016 levels.
2017 Fringe Benefit Limits
The following limits apply to fringe benefits in 2017:
- An employer may provide an employee with up to $13,570 in adoption assistance benefits (up from $13,460 in 2016) on a tax-free basis. The benefit begins to phase out for an employee who earns more than $203,540 (up from $201,902 in 2016), and is completely phased out for an employee who earns more than $243,540 (up from $241,920 in 2016).
- The monthly amount an employee can exclude from income for employer-provided parking or mass transit benefits will remain $255.
- For plan years beginning in 2017, the maximum amount an employee may defer to a health savings account increases to $2,600, from $2,550.
- For Archer medical savings accounts, the range for determining high-deductible health plans for self-only coverage will remain $2,250 - $3,350. The limit on out-of-pocket expenses for individuals with self-only coverage will increase to $4,500 (currently $4,450). The range for determining high-deductible health plans for family coverage will increase to $6,750 (currently $6,700). The limit on out-of-pocket expenses for an individual with self-only coverage will increase to $8,250 (currently $8,150).
- The maximum amount of long-term care insurance that is excludable from an employee's income per day will increase to $360 (currently $340).
Personal Income Tax Amounts
An employee must take the following information into consideration when figuring his or her 2017 income tax liability:
- The personal exemption amount will remain $4,050. It will begin to be phased out for married couples filing jointly and surviving spouses who earn $313,800 ($311,300 in 2016), and will be completely phased out at earnings of $436,300 ($433,800 in 2016). The phase-out for heads of household will begin at $287,650 ($285,350 in 2016) and will be complete at $410,150 ($407,850 in 2016). The phase-out for unmarried taxpayers will begin at $261,500 ($259,400 in 2016) and will be complete at $384,000 ($381,900 in 2016). The phase-out for married couples filing separately will begin at $156,900 ($155,650 in 2016) and will be complete at $218,150 ($216,900 in 2016).
- The standard deduction amounts will increase to $12,700 (from $12,600 in 2016) for married couples filing jointly or surviving spouses; $9,350 (from $9,300 in 2016) for heads of household; $6,350 (from $6,300) for unmarried taxpayers and married couples filing separately; and $1,050, or the sum of $350 and the individual's earned income for taxpayers who can be claimed as a dependent, whichever is greater (unchanged from 2016).
- The additional standard deduction for married couples filing jointly and individuals who are aged and blind will remain $1,250. The additional standard deduction for other taxpayers will remain $1,550.
- The overall limitation on itemized deductions will increase to $313,800 ($311,300 in 2016) for married couples filing jointly and surviving spouses; $287,650 ($258,350 in 2016) for heads of household; $261,500 ($259,400 in 2016) for unmarried taxpayers; and $156,900 ($155,650 in 2016) for married couples filing separately.
Foreign Earned Income, Housing Amounts
To avoid double taxation, the Internal Revenue Code allows an employee who works overseas to exclude certain amounts from income. The following are the 2017 amounts:
- The maximum foreign earned income exclusion will increase to $102,100 ($101,300 in 2016);
- The maximum foreign housing exclusion will increase to $14,294 ($14,112 in 2016);
- The foreign housing-cost exclusion limitation will increase to $30,630 ($30,090 in 2016); and
- The base housing amount will increase to $16,336 ($16,208 in 2016).
The following additional amounts have been inflation-adjusted for 2017:
- The maximum amount of long-term care insurance that may be excluded from an employee's income, per day, will increase to $360 ($340 in 2016).
- The pipeline construction industry per diems will remain $11 per hour for fuel and $17 per hour for rig-related expenses that are deemed substantiated.