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April 23, 2014

The American Taxpayer Relief Act of 2012’s Impact on Employer-Provided Fringe Benefit Plans

As you are probably aware, Congress has passed and President Obama has signed the American Taxpayer Relief Act of 2012 (ATRA), which avoided the “fiscal cliff.”  This newsletter outlines what that means for your employer-provided fringe benefit plans. 

Qualified Transportation Plans 

ATRA extends through the end of 2013 the transit parity rule that makes the combined monthly limit for qualified transit pass and vanpooling benefits equal to the considerably higher monthly limit for qualified parking benefits.  In 2012 the combined limit for transit pass and vanpooling benefits was only $125 per month, while the 2012 limit for qualified parking benefits was $240.  As a result of the legislation, the combined transit pass/vanpooling limit for 2012 rises to $240.  Note, however, the 2013 limit has not yet been announced.

Qualified Adoption Assistance Benefits 

The income exclusion for employer-provided adoption assistance benefits and the expansion of the adoption tax credit made by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) are now permanent.  The benefit limit is still $10,000.

Qualified Educational Assistance Programs 

The exclusion for qualified educational assistance programs was also subject to EGTRRA’s sunset date and would have expired at the end of 2012.  ATRA deleted the EGTRRA sunset date, restored the exclusion and made the exclusion permanent.  The benefit limit is still $5,250.

Employer-Provided Child Care

EGTRRA created a tax credit for employers that provide child-care services.  ATRA deleted the EGTRRA sunset date, making the credit permanent.

Dependent Care Assistance Plans (DCAP)/Dependent Care Tax Credit (DCTC) 

For purposes of the income exclusion for DCAP payments and the DCTC, the deemed earned income of a spouse who is a full-time student or incapable of self-care will remain at $250 per month for one qualifying individual and $500 per month for two or more qualifying individuals.  (These amounts were scheduled to decrease to $200 and $400, respectively, in 2013.)  EGTRRA’s other changes to the DCTC have also been made permanent.  These changes include the amount of employment-related expenses that taxpayers may take into account ($3,000 for one qualifying individual and $6,000 for two or more qualifying individuals), the percentage for determining the credit (35 percent) and the income level at which the credit begins to phase out ($15,000).  Certain changes to the earned income credit and child tax credit have also been extended or made permanent, which may be relevant when calculating a participant’s federal income tax savings from claiming the DCTC versus participating in a DCAP.

© 2014 McDermott Will & Emery

About the Author

Partner

Amy Gordon is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office.  She focuses her practice on the areas of welfare benefits, including self-funded and insured health plans. She assists clients in designing and maintaining compliant flexible benefit, life, medical, dental, pharmacy, EAP, educational assistance, disability, supplemental health, severance, Health Savings Accounts, Health Reimbursement Accounts, and other types of welfare plans.  She counsels clients with respect to HIPAA, ERISA and the Internal Revenue Code...

312-984-6931

About the Author

Partner

Susan M. Nash is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office.  Susan focuses her practice primarily in the area of health and welfare benefit plans, including compliance with COBRA, HIPAA, ERISA, the Affordable Care Act, the Internal Revenue Code, and other federal laws affecting group health plans.

312-984-7660

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