Executive Summary: As most everyone knows by now, Congress adopted, and President Obama signed, legislation – the American Taxpayer Relief Act (the "Act") – that resolves many elements of the so-called "fiscal cliff," i.e., the various tax increases and expiration of tax breaks, along with spending cuts, that were to have become effective with the new year. Much has been written and reported about applying the scheduled tax rate increases only to high-income taxpayers, changing the Alternative Minimum Tax so that it would not penalize the "middle class," increasing estate tax for certain "large" estates, allowing the 2011 payroll tax cut to expire (along with other scheduled payroll tax increases), and other "newsworthy" aspects of the Act. Little has been mentioned, however, about the Act's provisions applicable to benefit plans and programs. So here are a few of those provisions.
Dependent-care assistance, adoption assistance and employer-provided educational assistance
Each of these benefits was scheduled to expire at the end of 2012. Rather than temporarily extend those expiring provisions, which is often done, the Act extended, but made permanent, these three exclusions. So, with appropriate programs, employees may continue to exclude from income up to $5,000 of employer-provided dependent-care assistance, up to $5,250 in employer-provided educational assistance, and up to $12,770 (projected 2013 limit) of employer-provided adoption benefits.
Qualified transportation fringe benefits
The monthly limit for tax-free employer-provided transit (and vanpooling) benefits had historically been less than the limit applicable to qualified parking benefits, until the benefits were equalized effective in March of 2009. This "parity" provision expired at the end of 2011. The Act retroactively reinstated the higher limit for 2012 and temporarily extends the exclusion through the end of this year.
Roth conversions
Generally, participants in traditional 401(k), 403(b) and governmental 457(b) plans have been permitted to create, and to transfer amounts that are "otherwise distributable" from those plans to, designated Roth accounts. The Act now (after December 31, 2012) allows similar transfers of amounts that are not "otherwise distributable."
Tax-free IRA distributions for charitable purposes
For amounts distributed during 2013, tax-free IRA distributions may again be made for charitable purposes by IRA holders who have reached age 70½. The Act also provides that distributions that are made in January 2013 can be recharacterized as having been made in 2012, and allows December 2012 distributions to be counted as having been made to an eligible charitable organization so long as they are in fact contributed to an eligible charity during January 2013 and they otherwise meet the applicable requirements (e.g., the $100,000 limitation).
Repeal of the CLASS Act
Under the Patient Protection and Affordable Care Act (the "ACA") a voluntary, public long-term care program called the Community Living Assistance Services and Supports (CLASS) Act was created, but the Department of Health and Human Services announced in 2011 that it would not implement the program because it was "not financially sustainable." The Act repeals the program, and also establishes a Commission on Long-Term Care to develop a plan for "a comprehensive, coordinated and high-quality system" to make long-term care services available for individuals who need them.
Consumer Operated and Oriented Plans
The ACA had also authorized nonprofit Consumer Operated and Oriented Plans ("CO-OPs") and appropriated funds to help eligible nonprofits establish the CO-OPs. The Act rescinds the remaining funding for CO-OPs, except for amounts that must be used to provide assistance and oversight for those organizations that have already received financial assistance to establish CO-OPs.
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