IRS Announces 2006 Limits for Qualified Transportation Fringe Benefits, Adoption Assistance Programs, and Health Savings

The IRS has now announced the cost of living adjustments for 2006 to the dollar limits that apply to qualified transportation fringe benefits, adoption assistance programs, and health savings accounts.

• Qualified Transportation Fringe Benefits. The limit on the monthly amount that can be excluded from income for qualified parking expenses will increase from $200 in 2005 to $205 in 2006. The aggregate monthly limit for transit passes (e.g., bus passes) and/or transportation in a commuter highway vehicle (e.g., van pooling) will remain at $105 in 2006.

• Adoption Assistance Expenses. For 2006, the maximum amounts that can be excluded from an employee's gross income for qualified adoption assistance expenses, and for expenses related to adoption of a child with special needs, will increase from $10,630 to $10,960 per child. In 2006, the exclusion will begin to phase out for taxpayers with adjusted gross income above $164,410, and will be completely phased out at $204,410.

• Health Savings Accounts. The maximum annual contribution to a health savings account will increase for 2006. For single coverage, the limit will increase from $2,650 to $2,700 (or the annual deductible, if less). For family coverage, the limit will increase from $5,250 to $5,450 (or the annual deductible, if less). The minimum deductible required to qualify as a high deductible health plan for purposes of the health savings account rules will increase from $1,000 to $1,050 for single coverage, and from $2,000 to $2,100 for family coverage, in 2006. The additional "catch-up" contribution that can be made by individuals age 55 or older increases by statute from $600 to $700 in 2006.

Adjustments to various dollar limits on retirement plans were published by the IRS earlier. Those adjustments were summarized in our October 19th Benefits Alert.