Guest Article

(From the October 29, 2007 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

IRS Issues 2008 Inflation-Adjusted Limits for Pre-Tax Transportation and Other Fringe Benefits

The Internal Revenue Service has issued Rev. Proc. 2007-66 to provide inflation-adjusted limits for pre-tax transportation and various other employee fringe benefits for the 2008 tax year. The relevant limits are summarized below.

Qualified Transportation Fringe Benefits

In general, IRC § 132(f) allows employees to exclude from their gross incomes, the value -- up to certain limits -- of "qualified transportation fringe" benefits provided by their employers. "Qualified transportation fringe" benefits include --

For the 2008 tax year, the monthly exclusion limit for qualified parking is $220, up from $215 in 2007. The 2008 aggregate monthly exclusion limit for transportation in a commuter highway vehicle and transit passes is $115, up from $110 in 2007.

Deductible IRA Contributions for Individuals Also Contributing to 401(k)s

Individuals generally can make deductible contributions to Individual Retirement Accounts (IRAs) of up to $5,000 per year, or $6,000 per year for individuals age 50 or older. IRC § 219(b). However, this deduction limit is phased out for individuals also participating in a 401(k) or other employer-sponsored retirement plan ("active participants") and earning above certain adjusted gross income thresholds. The Pension Protection Act of 2006 (P.L. 109-280) amended IRC § 219(g) to provide for annual inflation adjustments to these adjusted gross income thresholds for tax years beginning after 2006.

For 2008, the phase-out of the IRA deduction limit will begin at $85,000 for active participants filing joint returns, and at $53,000 for all other active participants who file as single or head of household. Active participants who are married but file separate returns generally may not make deductible contributions to IRAs. However, active participants who file separate returns and do not live with their spouses are not treated as "married" for purposes of these rules.

If the phase-out applies to an individual only because his or her spouse is an active participant, then the phase out will begin at $159,000 for that individual.

Adoption Assistance Programs

Under IRC § 137, employers can provide tax-free adoption assistance to employees, subject to certain limits, pursuant to an adoption assistance program. For 2008, the maximum exclusion amount is $11,650 per child. The maximum exclusion amount will begin to phase out for employees with modified adjusted gross incomes of more than $174,730, and will be completely phased out for taxpayers with modified adjusted gross incomes of $214,730 or more.

Eligible Long-Term Care Premiums

In general, IRC § 213(d)(10) imposes age-based limits on the amount of long-term care premiums that an individual can count as "medical care" for purposes of the IRC § 213 medical expense deduction. The limits for 2008 are as follows:

Archer MSAs

Archer MSAs are available only to self-employed individuals and employees of "small employers" -- generally an employer with 50 or fewer employees. Furthermore, these individuals cannot establish MSAs and continue to take deductions for contributions to their MSAs unless they are covered by a "high deductible health plan."

For 2008 tax years the following parameters for "high deductible health plans" will be in effect:

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, Taina Edlund 202.879.4956, Mike Haberman 202.879.4963, Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2007, Deloitte.