The American Recovery and Reinvestment Act of 2009 (ARRA) included a provision that increased the maximum pre-tax benefit under a Section 132 transportation plan from $120 to $230 monthly. Unless Congress acts to extend this provision, the provision will expire at the end of the 2010 calendar year and the benefit will once again be capped at $120 monthly.

Many Section 132 plans require that participants purchase their transit passes or other media in advance. For these plans, it is critical that this information is communicated to the plan participants in advance of the ordering period for January passes.

Child and Dependent Care Tax Credit

The Child and Dependent Care Tax Credit (CDCTC) provides a credit of between 20 and 35 percent of up to $3,000 (or $6,000 for two or more children) of work-related dependent care expenses. The amount of credit available to a taxpayer is determined by the taxpayer’s adjusted gross income. Information regarding this credit is available on the IRS Web site at http://www.irs.gov/taxtopics/tc602.html

The amount of the credit available under the CDCTC was increased by The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), which is set to expire at the end of 2010. Unless Congress acts to extend EGTRRA, the provisions of the CDCTC will revert to their previous levels of between 20 and 30 percent of up to $2,400 for one qualifying individual and $4,800 for two or more qualifying individuals.

Small Business Health Care Tax Credit

The Patient Protection and Affordable Care Act of 2010 (PPACA – enacted March 23, 2010) created a credit to help small businesses and small tax-exempt organizations afford the cost of providing health care coverage to their employees.

The credit is worth up to 35 percent of a small business’ premium costs in 2010 (25 percent for eligible tax-exempt employers) and increases to 50 percent beginning January 1, 2014 (35 percent for eligible tax-exempt employers). To qualify for the credit, a qualifying employer must meet the following criteria:

• Must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.

• Must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).

• Must pay average annual wages below $50,000.

More information about the credit, including a guide to claiming the credit, is available on the IRS Web site at http://www.irs.gov/newsroom/article/0,,id=223666,00.html.

2011 IRS Plan Limits

The following table reflects the 2011 IRS plan limits for various benefit plans:

^[2] An employee is treated as being eligible for the entire calendar year as long as he or she is eligible during the last month of the calendar year. However, failure to maintain eligibility during the “testing period” will result in adverse tax consequences (including an additional excise tax). The testing period begins in December of the year in which the employee becomes eligible and ends the last day of December of the following year.

^[3] The amount excludable from an employee’s gross income begins to phase out for taxpayers with modified adjusted gross income in excess of $182,180 and is completely phased out for taxpayers with a modified adjusted gross income of $222,180 or more.

^[4] The amount excludable from an employee’s gross income begins to phase out for taxpayers with modified adjusted gross income in excess of $182,520 and is completely phased out for taxpayers with a modified adjusted gross income of $222,520 or more.

^[5] The amount excludable from an employee’s gross income begins to phase out for taxpayers with modified adjusted gross income in excess of $185,210 and is completely phased out for taxpayers with a modified adjusted gross income of $225,210 or more.