IRS Releases 2021 Contribution Limits

Nov 5, 2020 | Employee Benefits, Employee Health Benefits, Retaining Employees

The IRS has released its cost-of-living adjustments, which impact several 2021 contribution limits for the upcoming tax year. Here are some of the key numbers relevant to household employers.

The IRS has released its cost-of-living adjustments, which impact a number of contribution limits for the 2021 tax year. Contributions are made on a pre-tax basis, which can reduce the amount you and your employee owe in taxes. Plus, offering benefits is a great way to retain your top workers and attract the best candidates for your job.

Here are some of the key contribution limits relevant to household employment.

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). Learn why a QSEHRA is a great health care option to offer your household employee.

Health FSA

For plan years beginning in 2021, the dollar limitation on voluntary employee salary reductions for contributions to a health flexible spending arrangement (health FSA) remains at $2,750. Set up an FSA for your household employee.

Medical Savings Accounts

To be eligible to make contributions to a Medical Savings Account (or if you want to make the contributions), your 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).

Offer affordable health insurance for your household employee.

Retirement plan contributions

The employee contribution limit for 401(k) plans will remain at $19,500. The catch-up contribution limit for employees aged 50 and over also remains unchanged at $6,500. The employee contribution limit for SIMPLE IRAs and SIMPLE 401(k) plans will remain at $13,500. Did you know you can set up a retirement plan for your household employee through GTM Payroll Services?

Qualified transportation benefits

The amounts that may be excluded from your employee’s 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.

GTM can help

On top of payroll, tax, and insurance services, GTM Payroll Services also offers employee benefits like health care options and retirement plans. Benefits are affordable and lower your employee’s gross income, which will reduce both your and your employee’s tax obligation. If you’re looking to hold on to a special employee or attract the best applicants possible to your position, then benefits are a fantastic way to set yourself apart from other household employers in a competitive job market. Learn more by calling (800) 929-9213 and asking for a free consultation with a household employment expert. We’ll walk you through all of your benefit options and answer your questions.