The IRS recently announced the tax year 2021 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. Notice 2020-45 provides details about these annual adjustments.
Here are the highlights for employers sponsoring health and welfare plans:
Health Flexible Spending Arrangement (FSA): The dollar limitation for employee salary reductions for contributions to health FSAs remains at $2,750. For plans that permit the carryover of unused amounts, the maximum carryover for amounts remaining in 2020 and carried over into 2021 is $550.
Qualified Small Employer Health Reimbursement Arrangement (QSEHRA): For 2021, the total amount of payments and reimbursements for any year cannot exceed $5,300 (increase of $50) and $10,700 for family coverage (increase of $100).
Qualified Transportation Fringe Benefit: For 2021, the monthly exclusion amount for transportation in a commuter highway vehicle and any transit pass remains at $270. The monthly exclusion amount for qualified parking also remains at $270.
Adoption Assistance Programs: For 2021, the amount that can be excluded from an employee’s gross income for the adoption of a child with special needs is $14,440 (increase of $100). The maximum amount that can be excluded from an employee’s gross income for the amounts paid or expenses incurred by an employer for qualified adoption expenses furnished pursuant to an adoption assistance program for other adoptions by the employee is $14,440 (increase of $100). The amount excludable from an employee’s gross income begins to phase out for taxpayers with modified adjusted gross income in excess of $216,660 and is completely phased out for taxpayers with modified adjusted gross income of $256,660 or more.
Also related to health and welfare plans, the notice covers limits relative to DCAPS, Premium Tax Credits and Small Business Health Care Tax Credits.