IRS Announces 2015 Inflation Adjustments to Fringe Benefits, Other Taxable Amounts

Author: Rena Pirsos, XpertHR Legal Editor

October 31, 2014

The IRS has announced the annual cost-of-living adjustments made to several employee benefits and taxable amounts, based on changes to the Consumer Price Index. These are the maximum amounts that may be excluded in 2015 from an employee's taxable income for specific benefits.

Employers should reprogram their computers and payroll systems with these new amounts before the first payroll of the upcoming year to ensure that they are withholding the correct amount of taxes from the pay of employees who receive the benefits.

Standard Deduction

The general standard deduction amounts will increase for 2015 to:

  • $12,600 for married couples filing jointly or surviving spouses (from $12,400 in 2014);
  • $9,250 for heads of household (from $9,100 in 2014); and
  • $6,300 for single taxpayers and married taxpayers filing separately (from $6,200 in 2013).

Under the American Taxpayer Relief Act of 2012 (ATRA), the standard deduction for joint filers/surviving spouses remains at 200% of the standard deduction for single filers.

The personal exemption for tax year 2015 is increased to $4,000 (up from $3,950 in 2014). Under ATRA, the phase-out of the personal exemption for higher income earners is reinstated and begins at:

  • $258,250 of adjusted gross income for singles ($250,000 in 2014);
  • $309,900 for married couples filing jointly or surviving spouses ($300,000 in 2014);
  • $154,950 for married couples filing separately ($150,000 in 2014); and
  • $284,050 for heads of household ($275,000 in 2014).

Qualified Transportation Fringe Benefits

The amounts that may be excluded from an employee's gross income for employer-provided qualified transportation fringe benefits for 2015 remain unchanged from the 2014 amounts. Specifically:

  • Up to $250 per month may be excluded for qualified parking benefits; and
  • Up to $130 per month may be excluded for transportation in a commuter highway vehicle and for any transit pass.

Parity for mass transit benefits, which was extended by ATRA, expired at the end of 2013.

Flexible Spending Account Deferrals

The dollar limitation under Internal Revenue Code (IRC) § 125(i) on voluntary employee salary reductions for contributions to health flexible spending arrangements for plan years beginning in 2015 is increased to $2,550 (from $2,500 in 2014).

Adoption Assistance Exclusion

Under IRC § 137(a)(2), the amount that can be excluded from an employee's gross income for the adoption of a child with special needs increases to $13,400 for 2015 (from $13,190 in 2014). The same amount is the maximum that can be excluded under § 137(b)(1) from an employee's gross income for the amounts paid or expenses incurred by an employer for qualified adoption expenses furnished under an adoption assistance program for other adoptions by an employee.

The amount excludable from an employee's gross income begins to phase out for employees with modified adjusted gross income (MAGI) exceeding $201,010 (up from $197,880 in 2014). It is completely phased out for employees with MAGI of $241,010 or more (up from $237,880 in 2014).

Earned Income Credit

Employers are encouraged to notify employees whose wages for 2015 will be less than $53,267 (up from $52,427 in 2014) that they may be eligible to claim the earned income credit on their 2015 personal income tax returns.

Medical Savings Account Deferrals

An employee must be covered by a high deductible health plan to be eligible to make contributions to a Medical Savings Account, or for the employer to make the contributions in the employee's behalf. For 2015, a high deductible health plan is defined as a plan with an annual deductible of $2,200 - $3,300 (up from $3,250 for 2014) for individual coverage, and $4,450 - $6,650 for family coverage (up from $4,350 - $6,550 in 2014).

Maximum out-of-pocket expenses cannot exceed $4,450 for individual coverage (up from $4,350 in 2014), and $8,150 for family coverage (up from $8,000 in 2014).

Long-Term Care Health Insurance Benefits

For long-term care insurance contracts that make per diem benefit payments, the maximum amount of the payments that is excludable from income in 2015 remains $330 per day.

Foreign-Earned Income and Housing Cost Exclusions

The 2015 maximum foreign-earned income exclusion amount under IRC § 911(b)(2)(D)(i) is increased to $100,800 (from $99,200 in 2014). The maximum amount of the foreign housing cost exclusion is increased to $14,112 (from $13,888 in 2014).

Pipeline Construction Industry Per Diem Option

In 2015, an eligible employer may pay certain welders and heavy equipment mechanics up to $17 per hour (unchanged from 2014) for rig-related expenses that will be deemed substantiated under an accountable plan, and up to $11 per hour for fuel (up from $10 per hour in 2014), when paid in accordance with Revenue Procedure 2002-41, 2002-1 C.B. 1098.