The IRS increases numerous tax limits, credits, and fringe benefits annually for inflation. The increases are based on various cost-of-living indexes used by the IRS. The indexes have remained stable over the past two years and, as a result, most of these limits are unchanged from 2010. Some of the limits for 2011 follow:
For the third year in a row, the Social Security tax wage base is $106,800. Note: The employee withholding rate, however, has decreased from 6.2% to 4.2% for 2011 making $4,485.60 the maximum withholding. (See Legacy News Flash 10-7, dated December 21, 2010 for further details.) The employer Social Security tax rate remains at 6.2% for 2011. Additionally, Medicare taxes are not limited to a wage base and the rate is 1.45% for both employees and employers.
Qualified retirement plan limits also remain unchanged. The maximum 401(k) employee deferral for 2011 is $16,500 plus a $5,500 catch-up contribution for participants age 50 and over, which is the same as the 2009 and 2010 limits.
One limit that has changed is the standard mileage rate. Effective January 1, 2011, the rate increased from $.50 to $.51 per mile. The standard mileage rate is based on the costs of operating an automobile. It does not include parking and tolls connected to business driving which may be deducted or reimbursed separately.
By Maria C. Solis, CPA, Partner, msolis@legacycpas.com