New Limits for Transportation and Adoption

The IRS has released the 2012 cost-of-living adjustments (COLAs) for limits relating to qualified transportation fringe benefits and adoption assistance.

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. But the temporary increase in the combined limit for transit passes and vanpooling expenses that was in effect for 2011 (which made the combined limit the same as the parking limit) 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 and Adoption Credit. First EGTRRA and then health care reform enhanced the maximum adoption tax credit and income exclusion for employer-provided adoption assistance. Despite temporary extensions under the 2010 Tax Relief Act the tax credit will again be nonrefundable in 2012 and the limits will be reduced. The maximum amount that may be excluded from an employee’s gross income under an employer-provided adoption assistance program (under Code § 137) for the adoption of a child will be $12,650 for 2012 (a $710 reduction from the enhanced 2011 limit). In addition, the maximum adoption credit allowed to an individual (back again under Code § 23, after having been temporarily redesignated as Code § 36C) for the adoption of a child will be $12,650 for 2012 (also a $710 reduction from 2011). Both the exclusion and the credit will begin to be phased out for individuals with modified adjusted gross incomes greater than $189,710 and will be entirely phased out for individuals with modified adjusted gross incomes of $229,710 or more (both income levels are $4,500 higher than for 2011).