The IRS has announced 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]. In addition, the IRS also released inflation-adjusted tables for 2021 reflecting any increases in the flexible spending arrangement (FSA) deferral limit, foreign earned income exclusion, and excludable transportation fringes, among other changes [Rev. Proc. 2020-45, 10-26-20]. These are known as cost-of-living adjustments (COLAs).
Pension Plan Limits
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 §401(k), §403(b), and §457(b) plans remains unchanged at $19,500.
FSA Deferrals, Transportation Fringes, and More
For plan years beginning in 2021, the dollar limitation for voluntary employee salary reductions for contributions to health FSAs remains at $2,750. For 2021, the amounts that may be excluded from gross income for employer-provided qualified transportation fringe benefits and qualified parking remain at $270 per month.
For More Information
For more information, see the APA Compliance Update, 2021 Pension, Other COLAs Announced. Compliance updates are emailed to APA members and are also available on the Compliance Updates webpage.
To learn more about federal and state laws, regulations, and information to keep your company's payroll operations in compliance, check out Payroll Source Plus!
Jyme Mariani, Esq., is Managing Editor of Payroll Currently and Payroll Information Resources for the APA.
