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  • Jan 07 / 2021
What's New

Business Standard Mileage Rate Decreases to 56 Cents in 2021


The IRS announced that the business standard mileage rate for transportation expenses paid or incurred beginning January 1, 2021, will be 56 cents per mile, down 1.5 cents from 2020 [Notice 2021-02, 12-22-20].

The mileage rate may be used to compute the amount to reimburse employees who are using their own cars for business purposes. It may also be used by employers that elect to use the “cents-per-mile” valuation method for purposes of determining the amount that needs to be imputed to an employee’s income for personal use of certain company-owned or leased nonluxury vehicles (see The Payroll Source®, §3.2-2). However, it may not be used by employees in claiming a tax deduction for unreimbursed employee business expenses, since such deductions are suspended by the Tax Cuts and Jobs Act.

In addition, the 2021 standard rate for miles driven for medical or moving purposes will decrease to 16 cents per mile, down from the 17 cents-per-mile rate in effect during 2020. The deduction for moving expenses only applies to members of the Armed Forces on active duty who move under a military order and due to a permanent change of station. The standard mileage rate for operating a passenger car for charitable purposes, which is set by law, will stay at 14 cents per mile in 2021.

For vehicles put into service in 2021, the cents-per-mile valuation method can be used only if the vehicle does not have a fair market value of more than $51,100 ($50,400 in 2020). For employer-provided vehicles under the fleet-average valuation rule, applicable to an employer with a fleet of 20 or more automobiles, the 2021 maximum value is $51,100 for an automobile ($50,400 in 2020). Note:The fleet-average valuation rule may not be used if any of the automobiles in the employer’s fleet exceeds its maximum allowable value.

REMINDER– Because of the 1.5 cent decrease in the business standard mileage rate, employers reimbursing employees at the 2020 rate need to be mindful of the rate change. To avoid having to include the extra 1.5 cent in the employee’s income and the accompanying withholding and reporting responsibilities, employers should make sure to change to the 2021 rate for all affected travel on or after January 1, 2021. And remember that business miles driven in December 2020 that show up on an employee’s expense report in 2021 are governed by the rules applicable to the corresponding 2020 mileage rate.

  • Jan 07 / 2021
What's New

States Extend Nexus Guidance for Employees Working Remotely


As the COVID-19 pandemic continues to affect people across the country, states have extended their guidance regarding nexus and withholding requirements. Here are some recent state developments.

Massachusetts

The Massachusetts Department of Revenue has extended pandemic-related state income taxation, withholding, and nexus rules that have been in effect on an emergency basis since April and apply from March 10, 2020.The requirements are now scheduled to expire 90 days after the COVID-19 state of emergency is lifted [TIR 20-15, 12-8-20]. New Hampshire has filed a lawsuit over these rules, which may be decided by the U.S. Supreme Court.

Rhode Island

Under emergency regulations that were extended again to January 18, 2021, income of employees who are nonresidents working outside of the state solely due to the pandemic will continue to be treated as Rhode Island-source income for withholding tax purposes [Department of Revenue, Division of Taxation News, 11-23-20].

South Carolina

The South Carolina Department of Revenue has issued additional guidance, effective from March 13, 2020, through June 30, 2021, stating that it will not use the temporary change of an employee’s work location during the COVID-19 relief period to impose withholding tax requirements [Information Letter #20-29, 11-30-20].

Courtesy of: Lia Coniglio, Esq, APA.

  • Jan 07 / 2021
What's New

IRS Releases 2021 Publication 15-T, Form W-4


The IRS has released the 2021 Publication 15-T, Federal Income Tax Withholding Methods, and the 2021 Form W-4, Employee’s Withholding Certificate. The 2021 Form W-4 has few changes and is very similar to the 2020 Form W-4.

2021 Publication 15-T

Publication 15-T describes how to figure federal income tax withholding using the percentage method and the wage bracket method and describes alternative methods for figuring withholding. The publication explains how to withhold income tax based on pre-2020 Forms W-4 and 2020 or later Forms W-4. 

New optional computational bridge

Adjustments for an employer to figure withholding based on pre-2020 Forms W-4 and 2020 or later Forms W-4 are described in more detail in the various worksheets. In addition, a new optional computational bridge is available. The computational bridge allows employers to treat 2019 or earlier Forms W-4 as if they were 2020 or later Forms W-4. Employers use computational procedures and data fields for a 2020 and later Form W-4 to arrive at the equivalent withholding for an employee that would have applied using the computational procedures and data fields on a 2019 or earlier Form W-4. Note:The new computational bridge only applies to pre-2020 Forms W-4 that were provided to employers before 2020. No employee may now complete a pre-2020 Form W-4.

The computational bridge may also be used for lock-in letters based on pre-2020 Forms W-4, and to convert a nonresident alien employee’s pre-2020 Form W-4 to a 2020 or later Form W-4.

Withholding on periodic payments of pensions and annuities

Employers should use Worksheet 5 and the percentage method tables in that section to figure withholding on periodic payments of pensions or annuities. If the recipient does not submit Form W-4P, Withholding Certificate for Pension or Annuity Payments, withholding on periodic payments is calculated as if the recipient were married claiming three allowances.

Withholding adjustment for nonresident aliens

Publication 15-T provides the amounts that employers should add to the wages paid to nonresident alien employees working in the United States when figuring their income tax withholding.

Help for smaller employers

The IRS Income Tax Withholding Assistant, which is an Excel spreadsheet that is designed to help small employers calculate the amount of federal income tax to withhold, has been updated for 2021. Employers that use an automated payroll system do not need to use the assistant.

  • Jan 07 / 2021
What's New

Preliminary list of state unemployment insurance wage bases for 2021

Courtesy of EY Payroll News Flash

State unemployment insurance (SUI) trust funds are largely financed by employer contributions (except in Alaska, New Jersey and Pennsylvania, where employees also make contributions). States are required to maintain an SUI wage base of no less than the limit set under the Federal Unemployment Tax Act (FUTA). The 2021 FUTA wage limit of $7,000 has remained unchanged since 1983, despite increases in the federal minimum wage and annual cost-of-living adjustments over the last 36 years.

Some states are conservative in their approach to maintaining adequate SUI trust fund reserves. Consequently, the SUI wage base is flexible in those states, meaning it is indexed to the average wage or varies based on the trust fund balance. According to the U.S. Department of Labor, 24 states and the Virgin Islands had a flexible wage base in 2020. (U.S. Department of Labor, Comparison of State Unemployment Laws, 2020.)

As a result of the COVID-19 pandemic, several states are considering or have passed legislation or have issued executive orders to change their UI laws, bolster UI trust funds and/or provide relief to their employers. For example, several states have transferred federal stimulus under the Coronavirus Aid, Relief, and Economic Security (CARES) Act to their UI trust fund balances to avoid significant increases in employers’ 2021 SUI tax rates. In addition, most states, at least for a period of time, chose not to charge employer reserve accounts with COVID-19 UI benefits.

A preliminary look at the 2021 state unemployment taxable wage bases

Following is a preliminary list of the 2021 SUI taxable wage bases (as compared to 2020) and employee SUI withholding rates, if applicable.

SUI taxable wage bases, 2021 vs. 2020

State

2021

2020

% increase or decrease

2021 employee contribution rates

Alabama

8,000*

8,000*

Alaska

43,600

41,500

5.06%

Employee SUI withholding rate is 0.5% on wages up to $43,600

Arizona

7,000*

7,000*

Arkansas**

10,000

7,000

42.9%

California

7,000*

7,000*

Colorado**

13,600

13,600

Connecticut

15,000*

15,000*

Delaware**

16,500

16,500

District of Columbia

9,000*

9,000*

Florida

7,000*

7,000*

Georgia

9,500*

9,500*

Hawaii

47,400

48,100

(1.48%)

Idaho

43,000

41,600

3.37%

Illinois

12,960

12,740

1.73%

Indiana

 9,500*

 9,500*

Iowa

32,400

31,600

2.53%

Kansas

14,000*

14,000*

Kentucky**

11,100

10,800

2.78%

Louisiana**

7,700

7,700

Maine

12,000*

12,000*

Maryland

8,500*

8,500*

Massachusetts

15,000*

15,000*

Michigan**

9,500 (EST)

9,000

5.56%

Minnesota

36,000 EST)

35,000

2.86%

Mississippi

14,000*

14,000*

Missouri

11,000

11,500

(4.55%)

Montana

35,300

34,100

3.52%

Nebraska**

9,000/24,000*

 9,000/24,000*

Nevada

33,400

32,500

2.77%

New Hampshire

14,000*

14,000*

New Jersey**

36,200

35,300

2.55%

Employee SUI withholding rate is 0.425% on wages up to $36,200

New Mexico

27,000

25,800

4.65%

New York**

11,800

11,600

1.72%

North Carolina

26,000 (EST)

25,200

3.17%

North Dakota

38,500

37,900

1.58%

Ohio**

 9,000*

9,000*

Oklahoma

24,000

18,700

28.3%

Oregon

43,800

42,100

4.04%

Pennsylvania

10,000*

10,000*

Employee SUI withholding 0.06% on total wages

Puerto Rico**

TBD

7,000

Rhode Island**

TBD

24,000/

25,500

South Carolina

14,000

14,000

South Dakota

15,000

15,000

Tennessee**

TBD

7,000

Texas

9,000*

9,000*

Utah

38,900

36,600

6.28%

Vermont

14,100

16,100

(14.18%)

Virginia

8,000*

8,000*

Virgin Islands

TBD

28,900

Washington

56,500

52,700

7.21%

West Virginia

12,000*

12,000*

Wisconsin

14,000*

14,000*

Wyoming

27,300

26,400

3.41%

FUTA

7,000*

7,000*

* Law sets the taxable wage base; legislation would be necessary to change.

** See footnote below.

*** Due to the high volume of COVID-19 UI benefit claims, the state is delayed in issuing 2021 SUI tax rate

information and notices.

EST: Estimated 2021 wage base

TBD: 2021 wage base was not available as of the time of this printing

Arkansas

2019 legislation (SB 298/Act 512) changes the way that Arkansas determines the SUI wage base starting with tax years after 2019. The SUI wage base, set by law at $10,000 for 2018 and 2019, is now determined each year by the average seasonally unadjusted UI benefit rate for the preceding fiscal year (July 1 through June 30). Depending on the UI benefit rate, the SUI wage base could range from $7,000 to $10,000. In addition, during times when the UI trust fund balance falls below a specified level, the SUI wage base could increase to $11,000 or $12,000. According to a Department representative, the taxable wage base will increase to $10,000 for 2021.

Colorado

2020 legislation (SB 20-207) sets the SUI taxable wage base at $13,600 for calendar year 2021 and provides that the SUI taxable wage base will increase incrementally to $30,600 by calendar year 2026.

Delaware

2013 legislation (HB 168) increased the SUI taxable wage base to a minimum of $10,500 and a maximum of $18,500 by linking the wage limit to the balance of the state’s unemployment trust fund. The higher the trust fund balance, the lower the taxable wage base. 2019 legislation (HB 198) froze the taxable wage base at $16,500 for 2020 (under the bill language from July 1, 2019 to October 29, 2020) so that the Division of Unemployment Insurance and the Unemployment Compensation Advisory Council could determine whether the formula used to calculate the annual figure should be revised. According to a Division representative, the taxable wage base will remain at $16,500 for 2021.

Kentucky

The taxable wage base is expected to continue to increase by $300 each calendar year until it reaches $12,000.

Louisiana

2020 legislation (SB 55/Act 40) provides that the SUI taxable wage base will remain at $7,700 for 2021.

Michigan

The SUI taxable wage base is expected to increase for 2021 from the $9,000 that has been in effect for the past several years to the $9,500 that is currently only assigned to delinquent employers. Michigan’s UI trust fund balance fell below $2.5 billion on June 30, 2020, the balance required for the $9,000 wage base to be in effect. Legislation introduced in September 2020 (HB 6136) would, if enacted, freeze the SUI taxable wage base at $9,000 for calendar year 2021.

Nebraska

2019 legislation (LB 428) increases the SUI taxable wage base to $24,000 for employers assigned the maximum rate. This change was effective for calendar year 2020. The taxable wage base remains $9,000 for all other employers.

New Jersey

Employee contribution rate includes the Workforce Development/Supplemental Workforce Funds surcharge.

New York

The taxable wage base will continue to increase as follows: 2022 — $12,000; 2023 — $12,300; 2024 — $12,500; 2025 — $12,800; 2026 — $13,000; for each year thereafter, computed as 16% of the state’s average annual wage.

Ohio

2016 legislation (SB 235) increased the SUI taxable wage base to $9,500 for calendar years 2018 and 2019. The taxable wage base reverted to $9,000 effective January 1, 2020 and will remain at that amount unless changed by future legislation.

Puerto Rico

2017 legislation grants the territory’s Secretary of Labor the discretion to increase the taxable wage base to as much as $10,500 if deemed necessary.

Rhode Island

Negative-balanced employers assigned the maximum tax rate will have a taxable wage base that is $1,500 higher than other employers (e.g., because the 2020 taxable wage base is $24,000, these negative-balanced employers pay taxes on the first $25,500 in wages).

Tennessee

Under Tennessee UI law, if the UI trust fund balance on December 31 of any year is less than $900 million, the taxable wage base is $9,000. If the trust fund balance is above $900 million, but less than $1 billion on December 31, the taxable wage base is $8,000. If the trust fund balance is over $1 billion on December 31, the taxable wage base is $7,000. The Tennessee UI trust fund balance as of November 30, 2020, was $1,165,876,123. If the balance remains above $1 billion as of December 31, 2020, the 2021 taxable wage base will remain $7,000.

  • Jan 04 / 2021
What's New

California’s Minimum Wage to Increase to $14 per Hour for Large Employers, $13 per Hour for Small Employers

Oakland—California’s minimum wage will increase on January 1, 2021 to $14 per hour for employers with 26 or more employees and $13 for employers with 25 or fewer employees.

California is the first state in the nation to commit to raising the minimum wage to $15 per hour statewide by 2022 for large businesses, and by 2023 for small businesses. The 2016 law increases the minimum wage over time consistent with economic expansion, while providing safety valves to pause wage increases if negative economic or budgetary conditions emerge.

Schedule for California Minimum Wage Rate

Date

Minimum Wage for Employers with 26 or More Employees

Minimum Wage for Employers with 25 or Fewer Employees

January 1, 2021

$14.00/hour

$13.00/hour

January 1, 2022

$15.00/hour

$14.00/hour

January 1, 2023

$15.00/hour

$15.00/hour

State law requires that most California workers be paid the minimum wage. Some cities and counties have a local minimum wage that is higher than the state rate. Workers paid less than the minimum wage are urged to contact the Labor Commissioner’s Office in their area to file a wage claim.

Employers are required to post information on wages, hours and working conditions at a worksite area accessible to employees. Notices for the wage orders in English and Spanish can be downloaded and printed from the workplace postings page on the DIR website.

Employers must ensure that the wage rate is displayed on the employee’s pay stub, and that employees are paid at least the minimum wage even when employees are paid at piece rate.

The California requirement to provide Supplemental Paid Sick Leave (SPSL) for COVID-19 related reasons expired on December 31, 2020.  Employees can file a wage claim for a violation of the law if it occurred prior to December 31. More information on the SPSL expiration is available on the Labor Commissioner’s webpage.

Employees with work-related questions or complaints may contact the Labor Commissioner’s Office Call Center in English or Spanish at 833 LCO-INFO (833 526-4636). Employees not being paid or provided paid sick leave can leave a confidential tip on the Labor Commissioner’s toll free number in English or Spanish at 855 LCO-SPSL (855 526-7775).

Contact: Erika Monterroza / Paola Laverde, Communications@dir.ca.gov, (510) 286-1161

  • Dec 30 / 2020
What's New

New COVID-19 Relief Law Signed: What You Need to Know


Courtesy of ADP

The Paycheck Protection Program is reopened with over $284B in funds available for new loans. First-time borrowers must have 500 or fewer employees and meet other eligibility criteria. In addition, second PPP loans are available to businesses that received a PPP loan previously if they have 300 or fewer employees and meet other eligibility criteria. PPP loans are available until March 31, 2021, or until all allocated funds are disbursed.

For new borrowers, as well as borrowers who have already received a loan and not yet applied for forgiveness, the law expands eligible non-payroll costs to include certain covered operations expenditures, property damage costs, supplier costs and worker protection expenditures. Non-payroll costs remain limited to less than 40% of the loan amount. Additionally, for all borrowers who have not yet applied for forgiveness, the safe harbor deadline to restore wage and employment levels is extended from December 31, 2020, to September 30, 2021.

Second PPP loans are available to businesses that received a PPP loan previously and that meet special requirements, including:

  • Second-time borrowers must have 300 or feweremployees. The rules of the program may limit participation if your organization has related entities, or if you are in certain industries. Check the Small Business Administration’s PPP website (https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program) or speak to your trusted legal or accounting advisor for more information.
  • To be eligible for a second PPP loan, businesses will need to demonstrate a reduction in revenue of at least 25% between corresponding quarters in 2020 and 2019. Special rules apply to businesses that were not in operation for all or part of 2019.
  • The maximum amount for second draw PPP loans is $2 million.
  • Borrowers must have fully spent the loan proceeds from their first PPP loan before their second PPP loan is disbursed.

As a reminder, PPP loans are designed to be 100% forgivable as long as the proceeds are spent in accordance with program rules.

Extension of Paid Leave Credits Under the Families First Coronavirus Response Act (FFCRA)

The FFCRA required employers with fewer than 500 employees to provide mandatory paid sick and paid family leave for certain reasons related to COVID-19. It provided a corresponding tax credit for any amounts paid to employees for the required paid leave. The COVID-related Tax Relief Act of 2020 (CTRA) extends the tax credit portion of the FFCRA for employers that voluntarily offer paid sick or paid family leave through March 31, 2021. The mandatory leave portion will terminate as expected on December 31, 2020.

Extension of Employee Retention Tax Credit (ERTC)

The CARES Act allows eligible employers to claim a federal tax credit with respect to qualified wages paid between March 13 and December 31, 2020. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the “Act”) extends the ERTC to cover wages paid through June 30, 2021. In addition, as of January 1, the Act increases the credit rate rom 50% to 70% of qualified wages, increases the per employee wage cap from $10,000 in the aggregate to $10,000 per calendar quarter, decreases the required decline in gross receipts from 50% to 20%, and increases the threshold for treatment as a large employer from 100 employees to 500 employees. Retroactive to March 13, the Act provides that employers who receive PPP loans may still be eligible for the ERTC to the extent qualified wages are not paid using forgiven PPP loan proceeds, and it clarifies that group health plan expenses may be considered qualified wages even if no other wages are paid to the applicable employee.

Extension of Repayment Period for Deferred Employee Social Security Taxes

The current guidance issued by the IRS (IRS Notice 2020-65) required that any deferred employee portion of Social Security tax withholding between September 1 and December 31, 2020, must be ratably withheld and paid from wages and compensation paid to employees between January 1 and April 30, 2021, or penalties and interest would begin to accrue on May 1, 2021. The CTRA extends the repayment deadline from April 30, 2021, to December 31, 2021, and the date for penalty and interest to begin accruing from May 1, 2021, to January 1, 2022.

  • Nov 19 / 2020
What's New

Year End Checklist 2020…


Year End Checklist 2020…

  • Audit, Audit, Audit…. Ask employees to verify name, address and social security number.Ensure recent new hires are correct (2020).  Place address update forms in the lunchroom, on bulletin boards
  • Send Self Service flyers to employees who have not registered
  • Update/Review your 2021 payroll calendar in your payroll system
  • Create your 2021 Payroll Processing Calendar for your employees. Include all Company Holiday dates.  Post on company intranet, bulletin boards, payroll stuffer (last payroll of the year)
  • Create your 2021 Paid Holiday List. Once approved post on company bulletin boards, intranet and payroll stuffer (last payroll of the year)
  • Prepare for employee 2020 Bonus Payroll Runs. Create in your payroll system and verify with your direct representative that correct taxes and no regular set deductions are taken
  • Create your 2021 Benefit Rate Sheet (if any changes). Include in Open Enrollment packets and post on your company intranet
  • Verify with Accounting Department if any new General Ledger numbers are needed and/or if there a changes such as inactive departments or GLs. Verify if any Fringe or imputed income needs to be included in payroll before the last payroll of the year (Life insurance for officers, employee personal use of company vehicle)
  • Review mapping of Healthcare Cost Memo Codes to ensure premiums populated in Box 12, Code DD on Form W-2 setup
  • Verify all voided checks have been reversed in your payroll system. Verify all corrections have been made before the last payroll of the year (manual check adjustments).
  • Order Labor Law Posters for 2021 for CA and any other states you have
  • Send new Workers Compensation Rates to your payroll provider so your monthly reports are accurate for reporting
  • Verify your Work Comp classification/EEOC codes match employee job titles (especially if EE has transferred or promoted).
  • Update 401k, HSA, FSA limits for 2021, ensure your payroll provider has updated on your behalf or update yourself
  • If you provide Group Term Life to your employees, any earnings over $50k will need to be reported on the W-2, Box 12, code C. Review the imputed income amounts and make adjustments, if needed.
  • Add Third party sick pay amounts, if needed. Check with your vendor first to see if they do this on your behalf
  • Verify the Retirement Plan Indicator is checked for W-2’s, if applicable
  • Audit location sites of your employees for the Multi Worksite Report (CA)
  • Audit your Timekeeping system to remove archive terminated employees, update new supervisors
  • Create new files for 2021 payroll files, tax files, timekeeping files
  • Create new binders for 401k plan updates, employee changes, deferral payments
  • Send out memo to employees who still receive a live check, to promote Direct Deposit/Paycards
  • Audit any FFCRA credits taken on your 941 form with your payroll vendor, run reports for verification Q3, Q4, 2020
  • Audit any CARES credit taken by your employees with your payroll vendor
  • Hope your year end is successful!
  • Nov 02 / 2020
What's New

2021 social security wage base will be $142,800


The Social Security Administration (SSA) announced on Tuesday, October 13that the 2021 social security wage base will be $142,800, which is an increase of $5,100 from $137,700 in 2020(view the SSA Fact Sheet). As in prior years, there is no limit to the wages subject to the Medicare tax; therefore all covered wages are still subject to the 1.45% tax. As in 2020, wages paid in excess of $200,000 in 2021 will be subject to an extra 0.9% Medicare tax that will be withheld only from employees’ wages. Employers will not pay the extra tax.

The FICA tax rate, which is the combined social security tax rate of 6.2% and the Medicare tax rate of 1.45%, will be 7.65% for 2021 up to the social security wage base. The maximum social security tax employees and employers will each pay in 2021 is $8,853.60, an increase of $316.20 from $8,537.40 in 2020.

The social security wage base for self-employed individuals in 2021 will also be $142,800.There is no limit on covered self-employment income that will be subject to the Medicare tax. The self-employment tax rate will be 15.3% (combined social security tax rate of 12.4% and Medicare tax rate of 2.9%) up to the social security wage base. In 2021, the maximum social security tax for a self-employed individual will be $17,707.20.

FICA coverage threshold for domestic, election workers

The threshold for coverage under social security and Medicare for domestic employees (i.e., the “Nanny tax”) will be $2,300in 2021, up from $2,200 in 2020; the coverage threshold for election workers will be $2,000 in 2021, up from $1,900 in 2020

Courtesy of the APA

  • Nov 02 / 2020
What's New

IRS Releases Revised Form 941, Instructions


The IRS released a revised 2020 Form 941,Employer’s Quarterly Federal Tax Return, and its instructions. The form will be used to report employment taxes beginning with the third quarter of 2020. The IRS revised Form 941 to allow employers that defer the withholding and payment of the employee share of social security tax on wages paid on or after September 1, 2020, to report the deferral.

Adjustments for Payments or Deposits Made in Same Quarter as a Deferral

The instructions provide guidance on how to report a deferral of the employer and/or employee share of social security tax that is subsequently paid or deposited in the same quarter it was deferred.

Revised Instructions for Schedules B and R

The IRS also updated the Instructions for Schedule B (Form 941), and the Instructions for Schedule R (Form 941), to reflect changes made to the Form 941
Courtesy of the APA –  Curtis E. Tatum

  • Nov 02 / 2020
What's New

2021 Pension, Other COLAs Announced

401(k), 403(b), 457(b) Pre-Tax Contribution Limit Remains $19,500 for 2021

The IRS has announced the changes to the dollar limits on benefits and contributions under qualified retirement plans, as well as other items, for tax year 2021 [Notice 2020-79, 10-26-20].

IRC §415, which provides for dollar limits on benefits and contributions under qualified retirement plans, also requires that the IRS annually adjust these limits for cost-of-living changes. The IRC also requires various other amounts to be adjusted at the same time and in the same manner as these dollar limits.

  • The limitation on the exclusion for elective deferrals under §402(g)(1) (e.g., §401(k) and §403(b) plans) remains unchanged at $19,500.
  • The limit on annual additions to defined contribution plans under §415(c)(1)(A) increases to $58,000 (from $57,000).
  • The limit on the annual benefit under a defined benefit plan contained in §415(b)(1)(A) remains unchanged at $230,000.
  • The annual compensation limit under §401(a)(17), §404(l), §408(k)(3)(C), and §408(k)(6)(D)(ii) increases to $290,000 (from $285,000).
  • The compensation amount under §408(p)(2)(E) regarding elective deferrals to SIMPLE retirement accounts remains unchanged at $13,500.
  • The limitation under §457(e)(15) concerning elective deferrals to deferred compensation plans of state and local governments and tax-exempt organizations (§457(b) plans) remains unchanged at $19,500.
  • The limitation under §416(i)(1)(A)(i) concerning the definition of “key employee” in a top-heavy plan remains unchanged at $185,000.
  • The limitation under §414(v)(2)(B)(i) for catch-up contributions to §§401(k), 403(b), and 457(b) plans for individuals age 50 or over remains unchanged at $6,500; the limitation under §414(v)(2)(B)(ii) for catch-up contributions to an employer’s SIMPLE plan for individuals age 50 or over remains unchanged at $3,000.
  • The limitation used in the definition of “highly compensated employee” under §414(q)(1)(B) remains unchanged at $130,000.
  • The compensation amount under §408(k)(2)(C) regarding simplified employee pensions (SEPs) increases to $650 (from $600).
  • The compensation amount under Treas. Reg. §1.61-21(f)(5)(i), concerning the definition of “control employee” for fringe benefit valuation purposes, remains unchanged at $115,000. The compensation amount under §1.61-21(f)(5)(iii) increases to $235,000 (from $230,000).
  • The limit on annual contributions to an Individual Retirement Arrangement, remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

IRS Announces 2021 COLAs for Transportation Fringes, FSA Deferrals, Foreign Earned Income Exclusion, and More

The IRS has also released inflation-adjusted tables for 2021 reflecting any increases in the FSA deferral limit, foreign earned income exclusion, and excludable transportation fringes, among other changes [Rev. Proc. 2020-45, 10-26-20].

Qualified transportation fringes

The amounts that may be excluded from gross income for employer-provided qualified transportation fringe benefits (transportation in a commuter highway vehicle and any transit pass) and qualified parking for 2021 both remain at $270.

Health flexible spending arrangements

For plan years beginning in 2021, the dollar limitation under IRC §125(i) on voluntary employee salary reductions for contributions to health flexible spending arrangements remains at $2,750. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $550.

Standard deduction

The standard deduction amounts for 2021 increase to $25,100 for married couples filing jointly or surviving spouses ($24,800 in 2020), $12,550 for single taxpayers and married taxpayers filing separately ($12,400 in 2020), and $18,800 for heads of household ($18,650 in 2020).

Federal tax levies

The Tax Cuts and Jobs Act altered the way the amount of wages, salary, or other income exempt from a federal tax levy is calculated. For taxable years beginning in 2021, the dollar amount used to calculate the amount determined under IRC §6334(d)(4)(B) remains unchanged at $4,300.

Foreign earned income exclusion

For 2021, the maximum foreign earned income exclusion amount under IRC §911(b)(2)(D)(i) is $108,700 (up from $107,600 in 2020). The maximum amount of the foreign housing cost exclusion is $15,218 (up from $15,064 in 2020).

Medical Savings Accounts

To be eligible to make contributions to a Medical Savings Account (or to have the employer make the contributions), an employee must be covered by a high deductible health plan. For 2021, a high deductible health plan is a plan with an annual deductible of $2,400-$3,600 for individual coverage (up from $2,350-$3,550 in 2020) and $4,800-$7,150 for family coverage (up from $4,750-$7,100 in 2020).

Maximum out-of-pocket expenses can be no more than $4,800 for individual coverage (up from $4,750 in 2020) and $8,750 for family coverage (up from $8,650 in 2020).

Long-term care insurance benefits

If a long-term care insurance contract makes per diem benefit payments, the amount of the payments that is excluded from income in 2021 is capped at $400 per day (up from $380 in 2020).

Adoption assistance

For 2021, the maximum amount that can be excluded from an employee’s gross income for qualified adoption expenses under an employer’s adoption assistance program is $14,440 (up from $14,300 in 2020). The maximum amount that can be excluded in connection with the adoption of a child with special needs is $14,440 (up from $14,300 in 2020).

The amount excludable from an employee’s gross income begins to phase out for taxpayers with adjusted gross income of $216,660 (up from $214,520 in 2020) and is completely phased out for taxpayers with adjusted gross income of $256,660 (up from $254,520 in 2020).

Qualified small employer HRA

For 2021, a qualified small employer health reimbursement arrangement (QSEHRA) is an arrangement which, among other requirements, makes payments and reimbursements for qualifying medical care expenses of an eligible employee that do not exceed $5,300 (up from $5,250 for 2020), or $10,700 in the case of an arrangement that also provides for payments or reimbursements for family members of the employee (up from $10,600 for 2020).

Pipeline construction industry per diem option

For 2021, an eligible employer may pay certain welders and heavy equipment mechanics up to $18 per hour for rig-related expenses that will be deemed substantiated under an accountable plan (unchanged from 2020) and up to $11 per hour for fuel (unchanged from 2020), when paid in accordance with Rev. Proc. 2002-41 (2002-23 IRB 1098).

Courtesy of the APA

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