IRS Releases 2012 Cost-of-Living Adjustments (COLAs)

12/05/2011

The IRS has released the 2012 cost-of-living adjustments (COLAs) for a wide variety of tax benefit limits, including limits relating to qualified transportation fringe benefits, dependent care assistance programs (DCAPs), and Archer MSAs.

  • Qualified Transportation Fringe Benefits. For 2012, the monthly limit on the amount that may be excluded from an employee’s income for qualified parking benefits will be $240, which is a $10 increase from the 2011 limit. However, the temporary increase in the monthly limit on the value of the qualified transportation benefits exclusion for transportation in a commuter highway vehicle and transit pass provided by an employer to its employees expires and reverts to $125 for 2012.
  • DCAPs. The $5,000/$2,500 DCAP limit has not changed it is a non-indexed limit. But some general 2012 tax limits are relevant to the federal income tax savings under a DCAP-these include the 2012 tax rate tables, the personal exemption amount, and the standard deduction amounts. Also relevant when calculating a participant’s federal income tax savings from claiming the dependent care tax credit (DCTC), versus participating in a DCAP, are the 2012 limits for the child tax credit and the earned income credit.
  • Archer MSAs. Some of the 2012 parameters for Archer MSA-compatible high-deductible health coverage have increased. For self-only coverage, the annual deductible must not be less than $2,100 (up $50 from 2011) or more than $3,150 (up $100 from 2011), with an out-of-pocket maximum of $4,200 (up $100 from 2011). For family coverage, the annual deductible must not be less than $4,200 (up $100 from 2011) or more than $6,300 (up $150 from 2011), with an out-of-pocket maximum of $7,650 (up $150 from 2011).
  • Highly Compensated Employee. The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $110,000 to $115,000.
  • Key Employee. The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $160,000 to $165,000.

To read more, please visit: http://www.irs.gov/newsroom/article/0,,id=248485,00.html and http://www.irs.gov/newsroom/article/0,,id=248482,00.html

Any questions, contact your WGA Client Executive or Client Service Manager or email compliance@wgains.com.