IRS Announces 2021 Employee Benefit Plan Limits

Présentation


The Internal Revenue Service (IRS) recently announced the cost-of-living adjustments to the applicable dollar limits for various employer-sponsored retirement and welfare plans for 2021. Nearly all of the dollar limits currently in effect for 2020 will remain the same, with only a few amounts experiencing minor increases for 2021.

In Depth


Recently the IRS and the Social Security Administration announced the cost-of-living adjustments to the applicable dollar limits on various employer-sponsored retirement and welfare plans and the Social Security wage base for 2021. The table below compares the applicable dollar limits for certain employee benefit programs and the Social Security wage base for 2020 and 2021.*

RETIREMENT PLAN LIMITS (guidance link) 2020 Δ 2021
Annual compensation limit $285,000 $290,000
401(k), 403(b) & 457(b) before-tax contributions $19,500 $19,500
Catch-up contributions (if age 50 or older) $6,500 $6,500
Highly compensated employee threshold $130,000 $130,000
Key employee officer compensation threshold $185,000 $185,000
Defined benefit plan annual benefit and accrual limit $230,000 $230,000
Defined contribution plan annual contribution limit $57,000 $58,000
Employee stock ownership plan (ESOP) limit for determining the lengthening of the general five-year distribution period $230,000 $230,000
ESOP limit for determining the maximum account balance subject to the general five-year distribution period $1,150,000 $1,165,000
HEALTH AND WELFARE PLAN LIMITS (guidance links here, here, here and here)
Health Flexible Spending Accounts
Maximum salary reduction limit $2,750 $2,750
Health FSA Carryover Limit $500 $550
Dependent Care Flexible Spending Accounts±
If employee is married and filing a joint return or if the employee is a single parent $5,000 $5,000
In employee is married but filing separately $2,500 $2,500
Excepted Benefit Health Reimbursement Arrangements $1,800 $1,800
Qualified Transportation Fringe Benefit and Qualified Parking (monthly limit) $270 $270
High Deductible Health Plans (HDHP) and Health Savings Accounts (HSA)
HDHP – Maximum annual out-of-pocket limit (excluding premiums):
Self-only coverage $6,900 $7,000
Family coverage $13,800 $14,000
HDHP – Minimum annual deductible:
Self-only coverage $1,400 $1,400
Family coverage $2,800 $2,800
HSA – Annual contribution limit:
Self-only coverage $3,550 $3,600
Family coverage $7,100 $7,200
Catch-up contributions (age 55 or older)± $1,000 $1,000
SOCIAL SECURITY WAGE BASE (guidance link)
Social Security Maximum Taxable Earnings (dollars) $137,700 $142,800

Plan sponsors should update payroll and plan administration systems for the 2021 cost-of-living adjustments and should incorporate the new limits in relevant participant communications, like open enrollment materials and summary plan descriptions.

For further information about applying the new employee benefit plan limits for 2021, contact your regular McDermott lawyer.

* The dollar limits are generally applied on a calendar year basis; however, certain dollar limits are applied on a plan-year, tax-year, or limitation-year basis.
± Not indexed for cost-of-living adjustments.