For many companies, 2018 left business owners scrambling to figure out ramifications of the new tax law. Many said goodbye to deductions on entertainment expenses and interest on loans but hopefully welcomed a lower tax rate. With 2019 here, what’s in store for business owners in the new year?
Contribute more to 401(k)
As part of the annual inflation adjustments made by the IRS, retirement savers will be able to contribute more pre-tax money to their retirement accounts in 2019. The 401(k)/403(b) employee contribution increased from $18,500 to $19,000. For employees 50 years old and over who may be lagging behind in retirement savings, the IRS did not increase the “catch up contribution.” It remains at $6,000 for 401(k) contributions. That being said, an older employee can contribute a maximum of $25,000 in 2019 which can be a big help in growing a nest egg. Employees who invest outside of the workplace using IRA’s can also see an increase in the amount they can save with the limits increasing from $5,500 to $6,000.
When you bundle employer and employee 401(k) contributions together, the funding limit increased from $55,000 to $56,000. The annual compensation limit is $280,000 and the highly compensated employee limit (HCE) increases from $120,000 to $125,000.
Changes in Social Security
Social Security announced a 2.8% cost-of-living adjustment starting in 2019. Employers and employees are taxed at a rate of 6.2% up to a certain threshold (Social Security
Taxable wage base limit). This threshold is increasing from $128,400 to $132,900 in 2019. That means employees could pay more in Social Security taxes depending on their salary.
More ways for employees to save
There are so many ways that companies try to support the well-being of their employees. There’s good news to share with your employees on the following limit increases that can help them save money.
Health Savings Account (HSA) is a medical savings account that grows tax-free and can be spent on eligible health and medical expenses. Unused balances roll over into the next year and continue to earn tax-free interest. Only employees enrolled in a high-deductible health insurance plan (HDHP with minimum deductible of $1,300 individual/$2,700 family) can qualify for an HSA. For 2019, employees can contribute $3,500 for single coverage and $7,000 for family coverage. Paying for deductibles, copayments and more from an HSA helps employees save on health care costs.
Flexible Spending Account (FSA) is similar to the HSA where employees contribute pre-tax money into an account and use it for eligible out-of-pocket health care costs like copayments, deductibles, some prescriptions and more. Unlike HSA, FSA is set up by employers. It has lower contribution limits and any unused balance is forfeited. For 2019, employees can contribute $2,700 for medical and dependent care limit stays at $5,000. While both offer excellent savings, HSA has the advantage of higher contribution limits and the ability to carry over from year to year while earning interest.
Commuter costs can add up for on-site employees. Whether driving to work and parking or taking mass transit, the monthly limit increases from $260 to $265. That means employees can make pre-tax contributions to their parking or transit costs.
In an age where costs continue to rise faster than salaries, every little bit helps. When employers continually educate the staff about various company- and government-sponsored programs, it demonstrates that you truly care about their future. This is a core value for many employers, but they don’t have the time to keep up with all the changes. That’s when they partner with us. We’re a certified professional employer organization (CPEO) and we have been helping businesses for over 20 years. Our clients decide which parts of their HR they want to outsource to us. Our a la carte pricing is by design, so our clients only pay for the services they need. Give us a call at 630-836-3000 to learn how we can help.