2021 IRS Adjusted Dollar Limits for Employee Benefit Arrangements

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In this legal update, our employee benefits team highlights the recently issued 2021 calendar year limits for qualified retirement plans, other retirement arrangements, fringe benefits, and health and welfare plans.

2021 Adjusted Dollar Limits for Retirement Plans

The Internal Revenue Service (IRS) announced cost-of-living adjustments for benefits and contributions under qualified retirement plans and other retirement arrangements for the 2021 calendar tax year. Several limits remain unchanged, including the elective deferral limit, the catch-up contribution limit, and the defined benefit plan maximum annual benefit. Other limits have increased, including the defined contribution plan annual addition limit ($58,000) and the annual compensation limit ($290,000). Key limits are provided below, and a complete list of adjusted limits can be found in IRS Notice 2020-79.

  2021 2020 2019
Defined Benefit Plan Maximum Annual Benefit $230,000 $230,000 $225,000
Annual Compensation Limit $290,000 $285,000 $280,000
Defined Contribution Plan Elective Deferral Limit (applicable to 401(k), 403(b), and most 457(b) plans) $19,500 $19,500 $19,000
Defined Contribution Plan Catch-up Contribution Limit for employees age 50 and over $6,500 $6,500 $6,000
Defined Contribution Plan Combined Annual Addition Limit $58,000 $57,000 $56,000
Dollar Limit Used in “Highly Compensated Employee” Definition $130,000 $130,000 $125,000
Dollar Limit Used in Top Heavy “Key Employee” Definition $185,000 $185,000 $180,000
ESOP Maximum Account Balance Subject to Five-Year Distribution Rule $1,165,000 $1,150,000 $1,130,000
ESOP Dollar Amount Used to Determine Lengthening of Five-Year Distribution Period      $230,000 $230,000 $225,000
IRA Contribution Limit $6,000 $6,000 $6,000
IRA Catch-up Contribution Limit $1,000 $1,000 $1,000
Wage Base for Social Security Tax $142,800* $137,700 $132,900

*Announced by the Social Security Administration in October 2020

The change in dollar limits may impact participant communications, such as enrollment materials and deferral election forms, in addition to administrative system programming. If you have any questions about the 2021 limits, please contact a member of the Stoel Rives Employee Benefits team.

2021 Adjusted Dollar Limits for Fringe Benefits and Welfare Plans

The Internal Revenue Service also announced cost-of-living adjustments for certain limits applicable to fringe benefit and health and welfare arrangements, most of which remain unchanged from 2020. Key limits are provided below.

  2021 2020 2019
Maximum Health Flexible Spending Account Salary Reduction $2,750 $2,750 $2,700
Maximum Health Flexible Spending Account Carryover $550 $550 $500
Transportation Fringe Benefit: Parking (per month) $270 $270 $265
Transportation Fringe Benefit: Transit Passes & Vanpool (per month) $270 $270 $265
Maximum Exclusion for Employer-Provided Adoption Assistance $14,400 $14,300 $14,080
Group-Term Life Insurance: Key Employee Dollar Threshold (Officer)
(More than 1% Owner)
$185,000
$150,000
$185,000
$150,000
$180,000
$150,000
Excepted-Benefit HRA Maximum Newly Available Benefit Amount $1,800 $1,800 N/A
Health Savings Account Maximum Contribution Limit* (Self-Only)
(Family)
$3,600
$7,200
$3,550
$7,100
$3,500
$7,000
Health Savings Account Catch-up Contribution Limit* $1,000 $1,000 $1,000

* Announced by the IRS in May 2020

The change in dollar limits impacts participant communications, such as open enrollment materials and spending account election forms, in addition to administrative system programming. If you have any questions about the 2021 limits, please contact a member of the Stoel Rives Employee Benefits team.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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