The IRS has announced the dollar limitations for retirement plans for the 2011 tax year, as well as the tax-free limitations on certain other amounts [IR 2010-108].
The retirement plan limitations below are unchanged from the 2010 tax year because the cost-of-living index did not increase enough over the past year to warrant an increase.
• Elective deferrals. The limitation on the exclusion for elective deferrals under IRC §402(g)(3) will remain at $16,500 in the 2011 tax year. This limitation affects elective deferrals to various plans, including IRC §401(k) plans, IRC §403(b) annuities, SEPs, and the federal government's Thrift Savings Plan.
• Defined benefit plans. The limitation on the annual benefit under a defined benefit plan will remain at $195,000 in the 2011 tax year. For participants who separated from service before Jan. 1, 2011, the limitation is computed by multiplying the participant's compensation limitation, as adjusted through 2010, by 1.0118.
• Defined contribution plans. The limitation on total annual contributions to defined contribution plans will continue to be $49,000 in the 2011 tax year.
• Annual compensation limit. The maximum amount of annual compensation that may be taken into account for various qualified plan purposes, including plans under IRC §401(a)(17), IRC §404(l), IRC §408(k)(3)(C), and IRC §408(k)(6)(D)(ii), will remain at $245,000 in the 2011 tax year.
• Key employee in top-heavy plan. The dollar limitation under IRC §416(i)(1)(A)(i) that is used in the definition of key employee in a top-heavy plan will continue to be $160,000 in the 2011 tax year.
• Highly compensated employee. The dollar amount used in defining highly compensated employees for nondiscrimination testing purposes under IRC §414(q)(1)(B) will remain at $110,000 in the 2011 tax year.
• ESOP five-year distribution period. The dollar amount for determining the maximum account balance in an employee stock ownership plan (ESOP) subject to a five-year distribution period will continue to be $985,000 in the 2011 tax year, while the dollar amount used to determine the lengthening of the five-year distribution period will remain at $195,000.
• Catch-up contributions. The dollar limitation for catch-up contributions to an applicable deferred plan (other than SIMPLE plans) for individuals age 50 or over will remain at $5,500 in the 2011 tax year. The amount for catch-up contributions under SIMPLE plans will remain at $2,500 in the 2011 tax year.
• Compensation limit on grandfathered government plans. The annual compensation limit under IRC §401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost-of-living adjustments (COLAs) to the plan's compensation limit to be taken into account, will continue to be $360,000 in the 2011 tax year.
• SEP compensation qualification. The annual compensation limit under IRC §408(k)(2)(C) will still be $550 in the 2011 tax year. Employees who earn more than $550, and who meet other requirements, must be allowed to participate in the employer's SEP plan.
• SIMPLE salary deferrals. The maximum amount of compensation that an employee/participant may elect to defer to a SIMPLE plan will remain at $11,500 in the 2011 tax year.
• Deferred compensation plans. The limit on deferrals to IRC §457 deferred compensation plans of state and local governments and tax-exempt organizations will remain at $16,500 in the 2011 tax year.
• Control employee. The employee compensation amount used in the definition of “control employee” for purposes of the auto commuting valuation rule in Reg. §1.61-21(f)(5)(iii) will remain at $195,000 in the 2011 tax year. The compensation amount used in the definition of company officers who are ineligible for the commuting valuation rule in Reg. §1.61-21(f)(5)(i) will continue to be $95,000 in the 2011 tax year.
Other Key Tax Figures
There are some inflation adjustments to the items below [Rev Proc 2010-40, 2010-46 IRB].
Adoption exclusion. Employer-provided adoption assistance may be excluded from an eligible employee's income for purposes of FIT and FITW if the benefits are provided as part of a qualified adoption assistance program. The adoption exclusion per child (whether or not he or she has special needs) will be limited to $13,360 in the 2011 tax year (up from $13,170 in 2010). The exclusion will begin to phase out for taxpayers with adjusted gross income (AGI) of over $185,210 and will be fully eliminated when AGI reaches $225,210. These figures were $182,520 and $222,520, respectively, in the 2010 tax year.
Long-term care premiums. Amounts paid for insurance that covers qualified long-term care services are treated as medical expenses up to specified dollar limits that vary with the age of the taxpayer as of the close of the tax year. For a taxpayer age 40 or younger, the 2011 tax year limit will be $340 (up from $330 in 2010); older than 40 but not more than 50, $640 (up from $620 in 2010); older than 50 but not more than 60, $1,270 (up from $1,230 in 2010); older than 60 but not more than 70, $3,390 (up from $3,290 in 2010); and older than 70, $4,240 (up from $4,110 in 2010).
Payments received under qualified long-term care insurance. Amounts received under a qualified long-term care insurance contract are generally excludable from income as amounts received for personal injuries and sickness, subject to a per diem limitation, which will be $300 in the 2011 tax year (up from $290 in 2010).
Archer MSAs. For Archer MSA purposes, in the 2011 tax year, a “high deductible health plan” will be a health plan that: (1) in the case of self-only coverage, the annual deductible is at least $2,050 and not more than $3,050 ($2,000 and $3,000 in 2010); in the case of family coverage, the annual deductible is at least $4,100 and not more than $6,150 ($4,050 and $6,050 in 2010); and (2) the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits don't exceed $4,100 for self-only coverage (up from $4,050), and $7,500 for family coverage (up from $7,400).
Health savings accounts. Inflation-adjusted figures for tax-favored health savings accounts (HSAs) are now announced after the release of the March CPI.
Foreign earned income exclusion. Individuals who have a tax home in a foreign country, and who satisfy either a bona fide foreign residence test or a foreign physical presence test, may elect to exclude a certain amount of their foreign earned income from taxation. The foreign earned income exclusion amount will increase to $92,900 in the 2011 tax year (up from $91,500 in 2010).
Property exempt from levy. The value of property exempt from levy under IRC §6334(a)(2) (fuel, provisions, furniture, and other household personal effects, as well as arms for personal use, livestock, and poultry) may not exceed $8,370 for levies issued for the 2011 tax year (up from $8,250 in 2010). The value of property exempt from levy under IRC §6334(a)(3) (books and tools necessary for the trade, business, or profession of the taxpayer) may not exceed $4,180 for levies issued for the 2011 tax year (up from $4,120 in 2010).
Deemed substantiation for reimbursement of employee expenses. Under an optional deemed substantiation rule, eligible employers in the pipeline construction industry can provide reimbursements that will be treated as made under an accountable plan (i.e., not included in income, not subject to withholding) to employees who furnish welding rigs or mechanics rigs. For calendar year 2011, an eligible employer may pay up to $16 per hour (unchanged from 2010) for rig-related expenses. If the employer provides fuel or otherwise reimburses fuel expenses, an eligible employer may pay up to $10 per hour (unchanged from 2010).
Qualified transportation fringe benefits. The IRS will announce the 2011 qualified transportation fringe benefit limitations at a later date.