2012 Cost-of-Living Adjustments Announced

24 October 2011 Publication
Authors: Isaac J. Morris

Legal News Alert: Employee Benefits

The IRS has announced the cost-of-living adjustments applicable to dollar limitations for retirement plans and other amounts for 2012.

The table below shows the 2012 and 2011 amounts. Changes affecting 401(k) plans include: the individual annual dollar limitation increased to $17,000 from $16,500; and the annual compensation limit increased to $250,000 from $245,000. The age 50 catch-up limit remained at $5,500, meaning participants who are age 50 or older can contribute an annual maximum of $22,500 in 2012.

2011 2012
§401(k) Deferrals / 403(b) Deferrals (§402(g)(1))

$16,500

$17,000

Catch-Up Contributions for Individuals Age 50 or Older (§414(v)(2)(B)(i))

$5,500

$5,500

Compensation Limit (§401(a)(17))

$245,000

$250,000

Defined Benefit Limit (§415(b)(1)(A))

$195,000

$195,000

Defined Contribution Limit (§415(c)(1)(A))

$49,000

$50,000

Highly Compensated Employees (HCEs) Nondiscrimination Testing Threshold (§414(q)(1)(B)) Pay Exceeding*

$110,000

$115,000

Key Employee Officer Compensation Threshold (§416(i)(1)(A); §409A(a)(2)(B))

$160,000

$165,000

Social Security Limits    
Old Age, Survivors, and Disability Insurance (OASDI) Tax Rate

4.2 percent**

6.2 percent

OASDI Taxable Wage Base

$106,800

$110,100

Medicare Tax Rate

1.45 percent

1.45 percent

Medicare Taxable Wage Base

All Wages

All Wages

Self-Employed OASDI Tax Rate

10.4 percent**

12.4 percent

Self-Employed Medicare Tax Rate

2.9 percent

2.9 percent

Other Indexed Limits    
§457 Deferrals (§457(e)(15))

$16,500

$17,000

Simplified Employee Pension (SEP) Maximum Pay (§408(k)(3)(C))

$245,000

$250,000

SEP Eligibility Pay Threshold (§408(k)(2)(C))

$550

$550

Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) Salary Reduction Maximum (§408(p)(2)(E))

$11,500

$11,500

Exclusion for Transportation in a Commuter Highway Vehicle and Any Transit Pass Per Month (§132(f)(2)(A))

$230

$125

Exclusion for Qualified Parking Per Month (§132(f)(2)(B)

$230

$240

Employee Stock Ownership Plans (ESOP) Payouts in Excess of Five Years (§409(o)(1)(C))    

One year for each

$195,000

$200,000

In excess of

$985,000

$1,015,000

* Current year classification is based on prior year compensation and limit. Nondiscrimination testing for 2012 will generally rely on the 2011 limitation of $110,000 for determining HCEs and the 2012 limitation of $115,000 will apply for 2013 nondiscrimination testing. Employers may, but are not required to, apply the top-paid 20 percent test in conjunction with this compensation limit.

** For 2011, the OASDI tax rate was reduced by two percentage points for employees and for self-employed workers, resulting in a 4.2 percent effective tax rate for employees and a 10.4 percent effective tax rate for self-employed workers.


Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and colleagues. If you have any questions about this alert or would like to discuss the topic further, please contact your Foley attorney or the following individuals:

Isaac J. Morris
Milwaukee, Wisconsin
414.297.4973
imorris@foley.com


Internal Revenue Service regulations generally require that, for purposes of avoiding United States federal tax penalties, a taxpayer may only rely on formal written opinions meeting specific requirements described in those regulations. This newsletter does not meet those requirements. To the extent this newsletter contains written information relating to United States federal tax issues, the written information is not intended or written to be used, and a taxpayer cannot use it, for the purpose of avoiding United States federal tax penalties, and it was not written to support the promotion or marketing of any transaction or matter discussed in the newsletter.

 

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