October 2011

IRS Benefit Limits for 2012

A Polsinelli Shughart Update

The IRS announced on October 20, 2011 the last of several cost-of-living adjustments applicable to dollar limitations for pension plans, health savings accounts, and other benefits for tax year 2012. An increase in the cost-of-living index met statutory thresholds causing the IRS to adjust many, but not all of the dollar limitations.

Highlights for 2012 include:

• Elective deferrals. Elective deferral (i.e., 401(k), 403(b) or 457(b) contribution) amount increases from $16,500 to $17,000
• Catch-up contributions. Catch-up contributions for those aged 50 and over remain unchanged at $5,500
• SIMPLE and IRA. SIMPLE and IRA contribution limit amounts remain unchanged for 2012, at $11,500 and $5,000 respectively, as do the SIMPLE and IRA catch up limits at $2,500 and $1,000 respectively
• Annual Additions. The annual addition limit for contributions to 401(k), profit sharing, 403(b), and similar plans increased from $49,000 to $50,000
• Compensation Limits. Maximum compensation limits for SEP, SIMPLE, and qualified retirement plans increased from $245,000 to $250,000
• ESOP. The dollar amount for determining the maximum account balance in an employee stock ownership plan (ESOP) subject to a five-year distribution period increased from $985,000 to $1,015,000. The dollar amount used to determine lengthening of the five-year distribution period increased from $195,000 to $200,000.
• 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 increased from $230 to $240. The temporary increase in the combined limit for transit passes and vanpooling expenses that was in effect for 2011 has expired. Unless Congress acts to reinstate the increase, the combined monthly limit for transit passes and vanpooling expenses will be $125 in 2012.
• Adoption assistance exclusion. The maximum amount that may be excluded from an employee's gross income under an employer-provided adoption assistance program decreased from $13,360 to $12,650
• HSA contributions. As announced in May, 2011 the annual limitation on contributions to a HSA for individuals increased from $3,050 to $3,100. The annual limitation on contributions to a HSA for families increased from $6,150 to $6,250.

Click here for a summary chart that lists the majority of all pertinent IRS limits for 2012.

What You Should Do Now

Because the 2012 IRS limits have only modestly changed from the 2011 limits, the actual impact of these changes should not be significant to most employers. However, companies should ensure that all plan documents, payroll systems and other internal processes appropriately reflect and are using the applicable 2012 limit information to the extent necessary.

The link to the official IRS announcements are located at:

• http://www.irs.gov/newsroom/article/0,,id=248482,00.html
• http://www.irs.gov/pub/irs-drop/rp-11-52.pdf
• http://www.irs.gov/pub/irs-drop/rp-11-32.pdf

For More Information

For more information about the impact of the new IRS limits to your circumstances, please contact the Employee Benefit and Executive Compensation Department.

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