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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.