Guest Article

(From the December 30, 2010 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Tax Bill Includes Employment-Related Provisions

The headline-grabbing provisions of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 ("the Act") include extending current marginal income tax rates through 2012 and providing another year of unemployment benefits for the long-term unemployed. But the bill, which President Obama signed into law on December 17, also includes a number of important employment-related provisions.

Mass Transit Parity

The American Recovery and Reinvestment Act (ARRA) of 2009 amended Code § 132(f) to temporarily make the monthly exclusion limit for employer-provided mass transit and vanpool benefits equal to the monthly exclusion limit for qualified parking. This special rule was set to expire at the end of December 2010. However, the Act extends it for another year. As a result, for 2011 the monthly exclusion limit for employer-provided mass transit and vanpool benefits will be $230, same as for qualified parking.

Adoption Assistance Programs

The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 increased the income exclusion for employer-paid adoption expenses from $5,000 to $10,000. This was set to expire on December 31, 2010, but the Act extended it through 2011. The inflation-adjusted income exclusion in effect for 2011 will be $13,360.

Employer-Provided Educational Assistance

The EGTRRA made the $5,250 gross income exclusion for employer-provided educational assistance applicable both to undergraduate and graduate education through 2010. The Act extends the exclusion (as modified by the EGTRRA) through 2012.

Employee Payroll Tax Cut

Employees currently pay a 6.2% Social Security tax on all wages earned up to the Social Security wage base ($106,800 for 2011), and self-employed individuals pay 12.4% on self-employment income up to the Social Security wage base. The Act reduces the payroll tax rate by 2 percentage points for both employees and self-employed individuals for 2011. The payroll tax rate for employers will not be affected.

Work Opportunity Payroll Tax Credit

The Act extends the Work Opportunity Payroll Tax Credit through December 31, 2011. The Work Opportunity Tax Credit, which is 40% of the first $6,000 of wages paid to new hires from one of nine targeted groups, was set to expire August 31, 2011.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955. Copyright 2010, Deloitte.