New 2024 rates issued by the IRS

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The new year brings a number of payroll, accounting and benefits adjustments that employers and employees alike should keep in mind. Here are a few areas in which updates should be noted:

IRS mileage reimbursement

The IRS optional standard mileage reimbursement rate will increase to 67 cents per mile driven for business use, which is up 1.5 cents from 2023. This rate is used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. These rates apply to electric and hybrid-electric automobiles as well as gasoline and diesel-powered vehicles.

The standard IRS mileage rate is usually used as a simpler alternative to calculating the actual reimbursable expenses attributable to an employee’s use of their personal vehicle for work, and such rate is generally presumed to be sufficient to cover the actual expense. Such vehicle-related reimbursable expenses covered in this rate include: car payments, gas/oil, license/registration fees, insurance, maintenance, depreciation, etc. The standard mileage reimbursement rate, however, does not compensate employees for other ancillary auto-related expenses, such as parking or tolls, and those expenses should be reimbursed as separate items if required for the work-related use of the vehicle. Accordingly, if your employees are required to use their personal vehicles in the performance of their duties (excluding their normal commute to and from work), they should be reimbursed for the expense of such use. Of course, if the employer provides a Company vehicle and gas for the employee to use for business, there is no obligation to reimburse the employee.

401k contribution limits

The contribution limit for employees who participate in 401(k) plans will increase to $23,000, up from $22,500. The catch-up contribution limit for employees age 50 and over who participate in 401(k) plans is $7,500 for 2024. Therefore, participants in 401(k) plans who are 50 and older can contribute up to a total of $30,500 for the year in 2024.

Health Savings Account limit

HSAs are pre-tax accounts that allow eligible individuals covered under a qualified high-deductible health plan to accumulate money, tax-free, to pay for qualified medical expenses. The HSA limits, which are indexed for inflation every year, will increase in 2024 as follows: $4,150 for self-only coverage (an increase of $300 from 2023) or $8,300 for family coverage (an increase of $550 from 2023).

Flexible Spending Account limit

FSA plans allow employees to accumulate funds on a tax-free basis to pay for qualified medical expenses not covered by a health plan, such as out-of-pocket expenses and deductibles, as well as a variety of products and services, including dental services, eyeglasses and some over the counter medications. For 2024, eligible employees may now contribute up to $3,200 annually to an FSA, an increase of $150 from 2023. For cafeteria plans that permit the carryover of unused amounts to the following year, the 2024 maximum carryover amount is $640, an increase of $30 from 2023.