IRS Announces 2012 Cost-of-Living Adjustments

The IRS has released inflation-adjusted tables for 2012 reflecting increases in the standard deduction, retirement plan contributions, and excludable transportation fringes, among other changes.

Standard deduction. The standard deduction amounts for 2012 increase to $11,900 for married couples filing jointly or surviving spouses (up from $11,600 in 2011), $8,700 for heads of household (up $8,500 in 2011), $5,950 for single taxpayers and married taxpayers filing separately (up from $5,800 in 2011).

Transportation fringes. The amounts that may be excluded from gross income for employer-provided "qualified transportation fringe benefits" for 2012 are as follows: $240 per month for "qualified parking" (up from $230 in 2011), and $125 per month for "transportation in a commuter highway vehicle and any transit pass." Note that parity for mass transit benefits, which was extended by the Tax Relief Act of 2010, expires at the end of 2011.

Foreign earned income exclusion. For 2012, the maximum foreign earned income exclusion amount is $95,100 (up from $92,900 in 2011). The maximum amount of the foreign housing cost exclusion is $13,314 (up from $13,006 in 2011).

Most Pension Plan Limits Increase in 2012
The IRS has announced the cost-of-living adjustments applicable to dollar limits on benefits and contributions under qualified retirement plans for tax year 2012. Many of the pension plan limits will change in 2012; however, other limits will remain unchanged.

• The limitation on the exclusion for elective deferrals (e.g., 401(k) and 403(b) plans) increases to $17,000 (from $16,500).
• The limit on annual additions to defined contribution plans increases to $50,000 (from $49,000).
• For limitation years ending after December 31, 2010, the limit on the annual benefit under a defined benefit plan increases to $200,000 (from $195,000).
• The annual compensation limit increases to $250,000 (from $245,000).
• The compensation amount regarding elective deferrals to SIMPLE retirement accounts is unchanged at $11,500.
• The limitation concerning elective deferrals to deferred compensation plans of state and local governments and tax-exempt organizations (457(b) plans) increases to $17,000 (from $16,500).
• The limitation concerning the definition of “key employee” in a top-heavy plan increases to $165,000 (from $160,000).
• The limitation for catch-up contributions to 401(k), 403(b), and 457(b) plans for individuals age 50 or over is unchanged at $5,500; the limitation for catch-up contributions to an employer’s SIMPLE plan for individuals age 50 or over remains unchanged at $2,500.
• The limitation used in the definition of “highly compensated employee” increases to $115,000 (from $110,000).
• The dollar amount for determining the maximum account balance in an employee stock ownership plan subject to a five-year distribution period increases to $1,015,000 (from $985,000), while the dollar amount used to determine the lengthening of the five-year distribution period increases to $200,000 (from $195,000).
• The annual compensation limit for eligible participants in certain government plans that, under the plan as in effect on July 1, 1993, allowed cost-of-living adjustments to the compensation limit under the plan to be taken into account, increases to $375,000 (from $360,000).
• The compensation amount regarding simplified employee pensions (SEPs) eligibility is unchanged at $550.
• The compensation amount under federal regulation concerning the definition of “control employee” for fringe benefit purposes increases to $100,000 (from $95,000). The compensation amount increases to $205,000 (from $195,000).

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