IRS updates limits for 2021

IRS released updated limits for 2021

There will be little change for contributions and benefit limits in the new year.

The IRS recently released the payroll and benefit plan limit updates for the upcoming year. The 2021 dollar limits and thresholds reflect the latest cost of living adjustments (COLA).

The taxable wage cap is subject to an automatic COLA each year based on increases in the national average wage index, calculated annually by the Social Security Administration (SSA).

Retirement and other benefit plan updates for 2021

The IRS has announced the dollar limitations for pension plans and other retirement related items for the 2021 tax year. Several limitations are higher than in 2021 due to COLA.

2021 amount
401(k), 403(b), 457 deferral limit $19,500
401(k), 403(b), 457 catch-up contribution limit $6,500
Annual compensation limit $290,000
Dollar limit for HCE $130,000
Dollar limit for key employee $185,000
SIMPLE deferral limit $13,500
SIMPLE catch-up contribution limit $3,000
IRA contribution limit $6,000
IRA catch-up contribution limit $1,000
COMP limit for SEP eligibility $650
DB 415 limit $230,000
DC 415 limit $58,000

HSA and health FSA contribution limits

Health savings account (HSA) contribution limits for 2021 increased $50 for self-only and $100 for family coverage. For health flexible spending account (FSA) plans, the dollar limit for employee contributions through salary reduction remains unchanged at $2,750.

2021 amount
HSA contribution limit (employer + employee) — Self only $3,600
HSA contribution limit (employer + employee) — Family $7,200
HSA catch-up contributions (age 55 or older) $1,000
Health FSA $2,750

Payroll and payroll tax updates for 2021

FICA Limits: The combined Social Security tax rate for 2021 will be 7.65% each for both the employer and employee share. Of that tax, 6.2% is for Old Age, Survivor and Disability Insurance (OASDI, also known as FICA) and 1.45% is for hospital insurance (Medicare). The OASDI wage base has increased to $142,800. There continues to be no cap on Medicare tax withholding.

Mileage: Rates for 2021 have not been announced. Historically, the IRS has released restated rates in mid-December. The stated business rate for 2020 was 57.5 cents per mile.

Minimum Wage: Currently, the federal minimum wage is $7.25 and remains the same in Kansas. While Kansas has no change, there are several states that are increasing their minimum wage effective January 1, 2021 unless noted otherwise, including but not limited to the states listed below:

State 2021 rate
Alaska $10.34
Arkansas $11.00
Connecticut (effective Sept. 1, 2020 / Aug. 1, 2021) $12.00 / $13.00
Florida $8.65
Illinois $11.00
Maine $12.15
Maryland (<15 employees / 15+ employees $11.60 / $11.75
Massachusetts $13.50
Montana $8.75
Nevada (effective Jul. 1, 2020) $9.50
New Jersey $12.00
New Mexico $10.50
Ohio $8.80
South Dakota $9.45
Vermont $11.75
Virginia (effective May 1, 2020) $9.50
Washington $13.69

State unemployment wage base changes for 2021

The taxable wage base remains at $14,000 in Kansas. There are several states that are changing their state unemployment wage base, including but not limited to those listed below:

State 2021 base
Arkansas $10,000
Iowa $32,400
Missouri (decrease) $11,000
Montana $35,300
Nevada $33,400
New Jersey $36,200
New Mexico $27,000
New York $11,800
North Carolina $26,000
Oklahoma $24,000
Utah $38,900
Vermont (decrease) $14,100
Washington $56,500
Wyoming $27,300

The following states have not released their state unemployment wage base for 2021:

  • Alaska
  • Delaware
  • Hawaii
  • Idaho
  • Illinois
  • Kentucky
  • Michigan
  • Minnesota
  • North Dakota
  • Oregon
  • Rhode Island
  • Tennessee

In summary

AGH provides this information for your reference and convenience to keep track of year-end changes and payroll and retirement related information.

If you have any questions about how to proceed in your situation, contact Brad Bechtel or Cindy McSwain using the information below.

Brad Bechtel

Senior Vice President
Employee Benefit Services

Brad Bechtel leads AGH’s employee benefit services (EBS) division, which serves clients nationwide. EBS is one of the region's largest providers of retirement plan recordkeeping services for daily valuation plans. The division provides consulting services to clients on employee benefit plans, including plan design, implementation, operation, fiduciary due diligence, compliance, and through affiliate AGH Wealth Management, discretionary and non-discretionary investment fiduciary services, investment advisory services and employee education.

Bechtel is experienced in executive compensation, including non-qualified, phantom stock, top hat and excess benefit plans, as well as other deferred compensation approaches. He has consulted for numerous Fortune 500 corporations on investment management and fiduciary due diligence. He also provides search and selection due diligence consulting services for companies seeking new investment and recordkeeping providers for their qualified plans. Bechtel is a registered investment advisor who holds Series 7, 24 and 66 FINRA registrations, and he is a member of the American Society of Pension Professionals & Actuaries.

Cindy McSwain

Senior Vice President
Outsourcing Services

Cindy McSwain leads AGH’s outsourcing services group. Her team provides payroll, accounting, funds disbursement, controller, and other financial outsourcing services to numerous clients throughout the U.S. Prior to joining the outsourcing group, Cindy served AGH’s audit clients for 10 years, working with a wide range of middle-market, closely held and family-owned organizations.

Her current clients cross many industry sectors, including manufacturing and distribution, restaurants, retailers, medical and not-for-profit. She has participated in numerous SEC filings and public registrations and has experience in mergers and acquisitions. Cindy is a certified public accountant and a member of both the American Institute of Certified Public Accountants and the Kansas Society of Certified Public Accountants.

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