I.R.S. Announces Cost of Living Adjustments for 2008
The IRS finally broke the $100,000 barrier. In 2008, Social Security taxes will be computed on a taxpayer’s first $102,000 of income.
The following employee benefit plan limits were increased for inflation, effective January 1, 2008:
• Defined Benefit Plans. The limitation on the annual benefit increases from $180,000 to $185,000.
• Defined Contribution Plans. The limit on the annual additions to a participant’s account increases from $45,000 to $46,000.
• Annual Compensation Limit. The maximum annual compensation for various qualified plan purposes increases from $225,000 to $230,000.
• Key Employee in Top-Heavy Plan. The dollar limit increases from $145,000 to $150,000.
• Highly Compensated Employee. The dollar limit increases from $100,000 to $105,000.
• Government Plans. The annual compensation limitation increases from $335,000 to $345,000.
The following limits were unchanged for 2008:
• Elective Deferral Under § 402(g)(1). The elective deferral limit under §402(g)(1) remains at $15,500.
• SEP Contribution. The contribution limit for SEPs remains at $500.
• State and Local Governments and Tax-Exempt Organizations. The deferral limit for plans of state and local governments and tax-exempt organizations remains at $15,500.
• SIMPLE Plan. The deferral limit for a SIMPLE plan remains at $10,500.
• Catch-Up Contributions. The dollar limit for catch-up contributions to a regular 401(k) plan remains at $5,000, while the limit for catch-up contributions to SIMPLE 401(k) plan and SIMPLE IRA remains at $2,500.