The Internal Revenue Service (IRS) increases many dollar limits, credits, and fringe benefits annually for inflation. The increases are based on various cost-of-living indexes used by the IRS. For the past two years, many of these limits remained unchanged. For 2012, some limits will not change while many have increased. The following are some of the limits for 2012.
The Social Security tax wage base increased for the first time in 4 years to $110,100 for 2012. The employee Social Security withholding rate, which was decreased from 6.2% to 4.2% in 2011, was temporarily extended until February 29, 2012.
As of February 23, 2012 it will remain at 4.2% with President Obama's signing of the Middle Class Tax Relief and Job Creation Act. The bill extends the 2 percentage point cut in the employee side of the payroll tax until the end of 2012.
The employer Social Security tax rate remains at 6.2%. Additionally, Medicare taxes are not limited to a wage base and the rate remains at 1.45% for both employees and employers.
Qualified retirement plan limits also increased after remaining unchanged for 3 years. The maximum 401(k) employee deferral for 2012 is $17,000 plus a $5,500 catch-up contribution for participants age 50 and over.
The standard mileage rate, which was increased to $.555 per mile as of July 1, 2011, remains unchanged. The standard mileage rate is based on the costs of operating an automobile. It does not include parking and tolls connected to business driving, which may be deducted or reimbursed separately.
See our 2012 Rates & Limits Release for a more complete list.
This article has been updated since its orignial publication to reflect the signing of the Middle Class Tax Relief and Job Creation Act on February 23, 2012.