Key 2017 Compensation & Benefit Limits
As we head into 2017, there are a few changes with respect to compensation and benefit limits.
401(k) Plan Limits
Employee 401(k) contributions for plan year 2017 will once again top off at $18,000 with an additional $6,000 “catch-up” contribution allowed for those turning age 50 or older. But maximum contributions from all sources (employer and employee combined) will rise by $1,000.
For employer-provided contributions to 401(k)-type plans, employers can contribute an additional $1,000 next year even if plan participants contribute to the individual limit. The annual defined contribution limit from all sources increases from $53,000 to $54,000 (plus the $6,000 catch-up if age 50 or older), or 100 percent of an employee’s compensation.
The annual ceiling on employee compensation that can be used to calculate employee deferral and employer matching contributions also is increasing to $270,000 from $265,000.
Although the limit used to define a highly compensated employee for nondiscrimination testing remains at $120,000, the dollar limit for defining key employees in a top-heavy plan rises to $175,000 from $170,000.
Social Security & Medicare Rates & Limits
For earnings in 2017, the maximum taxable earnings limit is increasing to $127,200 from $118,500.
The OASDI tax rate for wages paid in 2017 is set by statute at 6.2 percent for employees and employers, each. Thus, an individual with wages equal to or larger than $127,200 would contribute $7,886.40 to the OASDI program in 2017, and his or her employer would contribute the same amount. The OASDI tax rate for self-employment income in 2017 is 12.4 percent.
For Medicare’s Hospital Insurance (HI) program, the tax rates are 1.45 percent for employees and employers, each, and 2.90 percent for self-employed persons.
Health Savings Account and High-Deductible Health Plan Limits
For 2017, the high deductible health plan (HDHP) annual deductible limits and out-of-pocket limits remain unchanged. Only the individual contribution limit increased slightly. As a reminder, if a family HDHP plan has an embedded deductible, the statutory minimum deductible for any individual cannot be less than $2,600 (the family statutory minimum deductible). The $1,000 catch up contribution available to accountholders aged 55 and over is not tied to a cost of living adjustment and thus, remains at $1,000.
For a summary of these changes, please refer to the attached table.