The IRS has released the 2017 cost-of-living adjustments (COLAs) for a wide variety of tax-related limits, including limits relating to salary reductions under health flexible spending arrangements (health FSAs), qualified transportation fringe benefits, adoption assistance, dependent care assistance programs (DCAPs), the small business health care tax credit, the premium tax credit, and Archer medical savings accounts (Archer MSAs).

• Health FSAs. For 2017, the dollar limit on employee salary reduction contributions to health FSAs will be $2,600 (a $50 increase from the 2016 dollar limit).
• Qualified Transportation Fringe Benefits. For 2017, the monthly limit on the amount that may be excluded from an employee’s income for qualified parking benefits will remain at $255. The combined monthly limit for transit passes and vanpooling expenses for 2017 will also remain at $255.
• Adoption Assistance Exclusion and Adoption Credit. The maximum amount that may be excluded from an employee’s gross income under an employer-provided adoption assistance program for the adoption of a child will be $13,570 for 2017 (a $110 increase from the 2016 maximum). In addition, the maximum adoption credit allowed to an individual for the adoption of a child will be $13,570 for 2017 (also a $110 increase from 2016). Both the exclusion and the credit will begin to be phased out for individuals with modified adjusted gross incomes greater than $203,540 and will be entirely phased out for individuals with modified adjusted gross incomes of $243,540 or more (these income levels are $1,620 higher than for 2016).
• DCAPs. While the $5,000/$2,500 DCAP limit has not changed (it is a non-indexed limit), there are adjustments to some of the general tax limits that are relevant to the federal income tax savings under a DCAP. These include the 2017 tax rate tables, earned income credit amounts, and standard deduction amounts. The child tax credit limits are also relevant when calculating the federal income tax savings from claiming the dependent care tax credit (DCTC) versus participating in a DCAP.
• Small Business Health Care Tax Credit. For 2017, the average annual wage level at which the tax credit begins to phase out for eligible small employers will be $26,200 (a $300 increase from the 2016 threshold). The maximum average annual wages to qualify for the credit as an “eligible small employer” for 2017 will be twice this amount; i.e., $52,400 (a $600 increase from the 2016 amount).
• Premium Tax Credit. For taxable years beginning in 2017, the following limitations on the tax for excess advance credit payments will apply: For unmarried individuals (other than surviving spouses and heads of household), $300 for household income less than 200% of the federal poverty line (FPL); $750 for household income at least 200% but less than 300% of FPL; and $1,275 for household income at least 300% but less than 400% of FPL (no changes from 2016). For all other taxpayers, the amounts are $600 for household income less than 200% of FPL; $1,500 for household income at least 200% but less than 300% of FPL; and $2,550 for household income at least 300% but less than 400% of FPL (also no changes from 2016). This tax is imposed if a taxpayer’s advance premium tax credit payments for health insurance purchased through an Exchange for a year exceed the allowed credit. 
• Archer MSAs. For Archer MSA-compatible high-deductible health coverage, the annual deductible for self-only coverage must not be less than $2,250 (no change from 2016) or more than $3,350 (no change from 2016), with an out-of-pocket maximum of $4,500 (up $50 from the 2016 maximum). For family coverage, the annual deductible must not be less than $4,500 (up $50 from the 2016 minimum) or more than $6,750 (up $50 from the 2016 maximum), with an out-of-pocket maximum of $8,250 (up $100 from the 2016 maximum).
• Requirement to Maintain Minimum Essential Coverage. For 2017, the applicable dollar amount used to determine the penalty for failure to maintain minimum essential coverage will be $695 (no change from 2016).

Other 2017 limits with benefit implications include the thresholds for determining who is a “control employee” under the commuting valuation rule (not yet announced for 2017) and the limits on the long-term care premiums that will be considered medical care under Code § 213(d). The penalty amounts applicable to information returns and individual statements (including Forms 1094 and 1095) have also been adjusted.

Comment: Sponsors and administrators of benefits with limits that are changing (e.g., health FSAs and adoption assistance programs) will need to determine whether their plans automatically apply the latest limits or must be amended (if desired) to recognize the changes. Any changes in limits should also be communicated to employees. Note that the Archer MSA pilot program expired at the end of 2007, which means that no new Archer MSAs can be established after that date. Many who previously had Archer MSAs have switched to health savings accounts (HSAs), which are generally more favorable.