The Cost of Living Adjustment (COLA) for 2015 has been released by the IRS. Every year, COLA is determined according to a formula specified by the Social Security Act. COLAs are based on increases in the Consumer Price Index for Urban Wage Earners and Clerical workers (CPI-W). CPI-W’s are calculated on a monthly basis by the Bureau of Labor Statistics. COLA’s are adjusted every year reflecting the CPI-W’s of the previous year. In the case of the COLA for 2015, it reflects the period from October 1, 2013 through September 30, 2014, the third quarter of 2013 through the third quarter of 2014.
The amount of money you can save with your 401(k) has increased for next year. The allowable amount of money you can contribute to your 401(k) has been increased $500 from 2014. Reflecting the change in COLA, employees will be able to contribute up to $18,000 to their 401(k) in 2015.
The change in COLA affects the amount coming out of your paycheck for the Federal Insurance Contributions Act (FICA). FICA includes Social Security Tax and Medicare Tax, which comes out of your paycheck at a flat percentage rage. The Social Security Tax is 6.2% of your wages, and the Medicare Tax is 1.45% of your wages. The amount of taxable earnings is capped for the Social Security Tax, with 2014’s cap being $117,000. In 2015, the maximum amount of taxable earnings is increased to $118,500. Medicare, on the other hand, does not have a cap for the amount of taxable earnings. In fact, those who earn over $200,000 will be taxed an additional 0.9% for Medicare. Here are the different ways COLA can effect you:
|2015 COST OF LIVING INDEXED ADJUSTMENTS FOR QUALIFIED PLANS||2015||2014|
|Employee Salary Deferral Limit to 401(k) Plans||$18,000||$17,500|
|Catch-up (age 50+) Deferral Limit to 401(k) Plans||$6,000||$5,500|
|Defined Contribution Maximum Annual Additions||$53,000||$52,000|
|Defined Benefit Maximum Annual Benefit||$210,000||$210,000|
|Maximum Compensation- Qualified Retirement Plans||$265,000||$260,000|
|Definition of Highly Compensated Employees||$120,000||$115,000|
|FICA Taxable Wage Base||$118,500||$117,000|
|SEP Minimum Compensation||$600||$550|
|SIMPLE Retirement Accounts Deferral Limit||$12,500||$12,000|
|Catch-up Deferral Limit for SIMPLE Accounts||$3,000||$2,500|
COLA fact sheet: http://www.ssa.gov/news/press/factsheets/colafacts2015.html If you have any questions or comments about how COLA affects you and your business, contact us at PAYDAY.
PAYDAY Workforce Solutions provides a single database SAAS solution for Human Capital Management (HCM) including payroll, human resources, time management, benefits administration and onboarding to companies of all sizes and in various industries.
625 The City Drive South, Suite 250
Orange, CA 92868