2021 Benefit Plan Limits

2021 Benefit Plan Limits

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On October 26, 2020, the IRS released the 2021 inflationary (cost of living) adjustments relating to several types of benefits.  Below are select highlights from IRS Revenue Procedure 2020-45.

Flexible Spending Account (FSA) Cap.  The $2,750 limit on the amount that can be contributed to a health flexible spending account (FSA) through voluntary salary reductions for plan years beginning in 2021 remains unchanged from 2020. 

Carryover.  For cafeteria plans that permit a carryover of unused amounts, the maximum carryover limit is increased to $550 in 2021, up from $500 in 2020.

Qualified Transportation Fringe BenefitsWith regard to transportation expenses reimbursed by an employer and excludable from the employee’s income under a qualified transportation program, the limits for 2021 remain the same as 2020:

 

2021

2020

Commuter Highway Vehicle (van pooling) and

Any Transit Pass

$270

$270

Qualified Parking

$270

$270

 

As a reminder, the Tax Cuts and Jobs Act (TCJA) suspended the employer’s deductibility of qualified transportation expenses, effective January 1, 2018.  The tax exclusion available to employees remains applicable.  In addition, the TCJA suspended the qualified bicycle commuter benefit from December 31, 2017 through December 31, 2025.  An employer sponsoring a qualified bicycle fringe benefit plan can still take a tax deduction (up to $20 per month, or $240 annually) for reimbursing participating employees who use a bicycle for traveling between their home and place of employment.  However, these amounts can no longer be excluded from the employee’s income.

Qualified Adoption Assistance Reimbursement Program (IRC §137)An employer-provided adoption assistance program that meets the qualifications of IRC §137, allows participants to recover expenses relating to adoption, such as reasonable adoption fees, court costs, attorney’s fees and traveling expenses.  Below are the exclusion limits and AGI phase-out limits for 2021 and 2020:

 

2021

2020

Exclusion Limit

$14,440

$14,300

AGI Phase-out Limits

Between $216,660 and $256,660

Between $214,520 and $254,520

 

Health Savings Accounts.  The 2022 annual limits applicable to health savings accounts were released earlier this year (see Health Savings Accounts: 2021 Inflationary Adjustments, Benefit Beat, 6/7/20).

Archer Medical Savings Accounts.  The Archer MSA pilot project ended on December 31, 2007; therefore, no new MSAs could be established after that date.  For existing MSAs, the annual deductible limits of a high deductible health plan used in conjunction with an Archer medical savings account for 2021 are slightly increased:

 

2021

2020

Single

Family

Single

Family

HDHP Annual Deductible

Between $2,400 and $3,600

Between $4,800 and $7,150

Between $2,350 and $3,550

Between $4,750 and $7,100

Out-of-Pocket Expenses

$4,800

$8,750

$4,750

$8, 650

 

Long-Term Care Premiums.  The IRS limitations relating to eligible long-term care premiums includible as medical care, as defined by IRC §213(d) are:

Age at end of tax year

2021 Premium Limit

2020 Premium Limit

<40

$450

$430

>40 but <50

$850

$810

>50 but <60

$1,690

$1,630

>60 but <70

$4,520

$4,350

>70

$5,640

$5,430

 

Small Business Tax Credit (SBTC).  Small businesses and tax-exempt employers who provide health care coverage to their employees under a qualified health care arrangement are entitled to a tax credit, as established by the Affordable Care Act.  To be eligible for the small business tax credit, the employer must employ fewer than 25 full-time equivalent employees whose average annual wages are less than $55,600 (indexed for 2021; the wage ceiling in 2020 is $55,200).  The tax credit phases out for eligible small employers when the number of its full-time employees (FTEs) exceeds 10; or, when the average annual wages for the FTEs exceeds $27,800 in the 2021 tax year (the phase-out wage limit in 2020 is $27,600).  As a reminder, only qualified health plan coverage purchased through a SHOP marketplace is available for the tax credit, and only for a 2-consecutive year period.

QSEHRA Payments and Reimbursements. A qualified small employer health reimbursement arrangement, known as a “QSEHRA”, allows eligible small employers (those employing fewer than 50 employees and who do not offer health coverage) to reimburse health insurance premium for individual coverage purchased either through or outside the marketplace. Such arrangement must meet certain criteria, specifically, the QSEHRA:

  1. Must be funded solely by the eligible small employer; no salary reduction contributions can be made under this arrangement; and,
  2. Provides, following the employee’s proof of coverage, for the payment or reimbursement for medical care expenses, as defined in IRC Section 213(d)), including premium for health coverage through the individual market, incurred by the eligible employee or his/her family members. For 2020, the annual amount of payments and reimbursements is capped at $5,250 for employee-only, or $10,600 for arrangements that provide for payments or reimbursements for the employee’s family members.  Both of these limits are subject to inflationary adjustments.  Accordingly, beginning in 2021, the total amount of payments and reimbursements is increased to $5,300 for employee-only; $10,700 for family coverage).  As a reminder, the total amount of permitted benefits received under a QSEHRA must be reported in Box 12, using Code FF of the Form W-2.

With regard to excepted benefit HRAs, the IRS previously announced that the maximum contribution amount for plan years beginning prior to January 1, 2022 remains at $1,800 (see Inflation-Adjusted Benefit Limit for Excepted Benefit HRA, CBIZ Health Reform Bulletin 154, 10/9/20).

Premium Tax Credit for Coverage under a Qualified Health Plan.  Individuals who buy coverage through the marketplace and meet certain income criteria may be eligible for an advance credit payment wherein a portion of the premium is made directly to the insurer to cover the cost of coverage.  The amount of an individual’s premium tax credit is reduced by the amount of any advance credit payments made during the year.  If the advance credit payment for a taxable year exceeds the premium tax credit limit, the individual would owe the excess as additional tax, subject to certain inflationary limits.  For tax years beginning in 2021, the limitation on tax imposed for excess advance credit payments is determined using the following table (note, these limitations remain unchanged from 2020):

Household Income

(as percent of poverty line)

Limitation amount for unmarried individuals

(other than surviving spouse and head of household)

Limitation amount for all other taxpayers

Under 200%

$325

$650

Between 200% and 300%

$800

$1,600

Between 300% and 400%

$1,350

$2,700

 

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The information contained in this article is provided as general guidance and may be affected by changes in law or regulation. This article is not intended to replace or substitute for accounting or other professional advice. Please consult a CBIZ professional. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.

2021 Benefit Plan Limits~/Portals/0/PackFlashItemImages/WebReady/2021 Benefit Plans COLA.jpghttps://www.cbiz.com/Portals/0/liquidImages/WebReady/2021 Benefit Plans COLA.jpgThe IRS released several 2021 cost of living adjustments for various aspects of benefits including the flexible medical spending account cap, transportation and adoption assistance benefits, Archer MSA limits, long term care premium, the small business tax credit and small employer health reimbursement arrangements, and the premium tax credit for coverage under a qualified health plan....2020-11-03T19:49:27-05:00

The IRS released several 2021 cost of living adjustments for various aspects of benefits including the flexible medical spending account cap, transportation and adoption assistance benefits, Archer MSA limits, long term care premium, the small business tax credit and small employer health reimbursement arrangements, and the premium tax credit for coverage under a qualified health plan.