Rev. Proc. 2014-61

News Release

The IRS has released the 2015 cost-of-living adjustments (COLAs) for a wide variety of tax-related limits, including limits relating to salary reductions under health FSAs, qualified transportation fringe benefits, adoption assistance, DCAPs, the small business health care tax credit, premium tax credit, and Archer MSAs.

• Health FSAs. For 2015, the dollar limit on employee salary reduction contributions to health FSAs will increase to $2,550 (a $50 increase from the 2014 limit of $2,500).
• Qualified Transportation Fringe Benefits. For 2015, the monthly limit on the amount that may be excluded from an employee’s income for qualified parking benefits will remain at $250. The combined monthly limit for transit passes and vanpooling expenses for 2015 will remain at $130.
• Adoption Assistance Exclusion and Adoption Credit. The maximum amount that may be excluded from an employee’s gross income under an employer-provided adoption assistance program for the adoption of a child will be $13,400 for 2015 (a $210 increase from the 2014 maximum of $13,190). In addition, the maximum adoption credit allowed to an individual for the adoption of a child will be $13,400 for 2015 (also a $210 increase from 2014). For 2015, both the exclusion and the credit will begin to be phased out for individuals with modified adjusted gross incomes greater than $201,010 and will be entirely phased out for individuals with modified adjusted gross incomes of $241,010 or more (these income levels are $3,130 higher than for 2014).
• DCAPs. While the $5,000/$2,500 DCAP limit has not changed (it is a non-indexed limit), there are adjustments to some of the general 2015 tax limits that are relevant to the federal income tax savings under a DCAP. These include the 2015 tax rate tables, personal exemption amount, and standard deduction amounts. Also relevant when calculating the federal income tax savings from claiming the dependent care tax credit (DCTC) versus participating in a DCAP are the 2015 limits for the child tax credit and the earned income credit.
• Small Business Health Care Tax Credit. For 2015, the average annual wage level at which the tax credit begins to phase out for eligible small employers is $25,800 (a $400 increase from the 2014 threshold). The maximum average annual wages to qualify for the credit as an “eligible small employer” for 2015 will be twice this amount, i.e., $51,600 (an $800 increase from the 2014 amount).
• Premium Tax Credit. For taxable years beginning in 2015, the following limitations on the tax for excess advance credit payments will apply: For unmarried individuals (other than surviving spouses and heads of household), $300 for household income less than 200% of the federal poverty line (FPL), $750 for household income at least 200% but less than 300% of FPL, and $1,250 for household income at least 300% but less than 400% of FPL. For all other taxpayers, $600 for household income less than 200% of the federal poverty line (FPL), $1,500 for household income at least 200% but less than 300% of FPL, and $2,500 for household income at least 300% but less than 400% of FPL. (This tax is imposed if a taxpayer’s advance premium tax credit payments for health insurance purchased through an Exchange for a year exceed the allowed credit.) The IRS will issue future guidance as necessary regarding the applicable inflation-adjusted items used to determine a taxpayer’s premium assistance amount and the required contribution percentage for determining employer-sponsored minimum essential coverage.
• Archer MSAs. For Archer MSA-compatible high-deductible health coverage, the annual deductible for self-only coverage must not be less than $2,200 (no change from the 2014 minimum) or more than $3,300 (up $50 from the 2014 maximum of $3,250), with an out-of-pocket maximum of $4,450 (up $100 from the 2014 maximum of $4,350). For family coverage, the annual deductible must not be less than $4,450 (up $100 from the 2014 minimum of $4,350) or more than $6,650 (up $100 from the 2014 maximum of $6,550), with an out-of-pocket maximum of $8,150 (up $150 from the 2014 maximum of $8,000).

Other 2015 limits with fringe benefit implications include the thresholds for determining who is a “control employee” under the commuting valuation rule (announced last week in IRS guidance on other limits) and the limits on the long-term care premiums that will be considered medical care under Code § 213(d).

Comment: This is the first increase for the limit on health FSA salary reductions (the limit was $2,500 when it took effect in 2013 and remained unchanged for 2014). Thus, employers with health FSAs—like those with adoption assistance plans—will need to determine whether their plans automatically apply the latest limits or must be amended (if desired) to recognize the changes. Any changes in limits should also be communicated to employees. Whether Congress will eventually extend the “rule of parity” that made the combined transit/vanpooling limit the same as the parking limit until the end of 2013 is uncertain. Note that the Archer MSA pilot program expired at the end of 2007, which means that no new Archer MSAs can be established after that date. Many who previously had Archer MSAs have switched to HSAs, which are generally more favorable. (For the 2015 COLAs for HSAs.)