Public Announcements

 

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).

 

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California SDI maximum and tax rate to go up in 2018

The wage base goes up in 2018 to $114,967, a $4,065 increase from the 2017 wage base of $110,902.  The SDI tax rate goes up to 1.0% in 2018, an increase of 0.1% from 2017’s rate of 0.9%.

The total amount of SDI that can be withheld in 2018 is $1,149.67, a $151.55 increase from the 2017 maximum of $998.12.

 

See CA Employment Development Department website (link attached) for more information: http://www.edd.ca.gov/Payroll_Taxes/Rates_and_Withholding.htm

 

The 2018 California State income tax withholding tables are also on this link.

 

Social Security Wage Base Increases to $127,200 for 2017

American Payroll Association - Compliance Update

Social Security Wage Base Increases to $127,200 for 2017 The Social Security Administration (SSA) announced on Tuesday, October 18, 2016, that the 2017 social security wage base will be $127,200, which is an increase of $8,700 from $118,500 in 2016 (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 2016, wages paid in excess of $200,000 in 2017 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 2017 up to the social security wage base. The maximum social security tax employees and employers will each pay in 2017 is $7,886.40, an increase of $539.40 from $7,347 in 2016.

The social security wage base for self-employed individuals in 2017 will also be $127,200. 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 2017, the maximum social security tax for a self-employed individual will be $15,772.80.

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 $2,000 in 2017, unchanged from 2016; the coverage threshold for election workers will be $1,800 in 2017, up from $1,700 in 2016.

 

2016 Federal Percentage Method Income Tax Withholding Tables Released

The Internal Revenue Service (IRS), on Tuesday, December 8, 2015, released Notice 1036, Early Release Copies of the 2016 Percentage Method Tables for Income Tax Withholding. The Notice is available at www.americanpayroll.org/members/Forms-Pubs/#pubs. The tables included in Notice 1036, along with the 2016 wage-bracket withholding tables, will appear in IRS Publication 15, (Circular E), Employer's Tax Guide, which will be published at a later date.

The withholding allowance amounts by payroll period have changed. For 2016 they are:

?

Payroll Period

?

One Withholding Allowance

?
?

Weekly

?

$??????77.90

?
?

Biweekly

?

155.80

?
?

Semimonthly

?

168.80

?
?

Monthly

?

337.50

?
?

Quarterly

?

1,012.50

?
?

Semiannually

?

2,025.00

?
?

Annually

?

4,050.00

?
?

Daily or Miscellaneous
(each day of the payroll period)

?

15.60

?
? ? ? ? ?

Note: When using the percentage method of withholding, the tax for the pay period may be rounded to the nearest dollar. If rounding is used, it must be used consistently.

Withholding adjustment for nonresident aliens
???????Also updated for 2016 are the amounts that employers should add to the wages paid to nonresident alien employees who perform services in the United States.

Rates for withholding on supplemental wages for 2016
???????There is a two-tiered system for withholding income tax from supplemental wages at a flat rate:

    • Optional flat rate: 25% for supplemental wages up to and including $1 million (no other percentage allowed), and

 

    • Mandatory flat rate: 39.6% for supplemental wages over $1 million.

 

2016 Rate for backup withholding
Payers of reportable payments generally must backup withhold 28% for federal income tax if the payee fails to provide a correct Taxpayer Identification Number (TIN).