November 30, 2020

Volume X, Number 335

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IRS Announces 2021 Employee Benefit Plan Limits

The Internal Revenue Service (IRS) recently announced the cost-of-living adjustments to the applicable dollar limits for various employer-sponsored retirement and welfare plans for 2021. Nearly all of the dollar limits currently in effect for 2020 will remain the same, with only a few amounts experiencing minor increases for 2021.

IN DEPTH


Recently the IRS and the Social Security Administration announced the cost-of-living adjustments to the applicable dollar limits on various employer-sponsored retirement and welfare plans and the Social Security wage base for 2021. The table below compares the applicable dollar limits for certain employee benefit programs and the Social Security wage base for 2020 and 2021.*

RETIREMENT PLAN LIMITS (guidance link)

2020

Δ

2021

Annual compensation limit

$285,000

$290,000

401(k), 403(b) & 457(b) before-tax contributions

$19,500

$19,500

Catch-up contributions (if age 50 or older)

$6,500

$6,500

Highly compensated employee threshold

$130,000

$130,000

Key employee officer compensation threshold

$185,000

$185,000

Defined benefit plan annual benefit and accrual limit

$230,000

$230,000

Defined contribution plan annual contribution limit

$57,000

$58,000

Employee stock ownership plan (ESOP) limit for determining the lengthening of the general five-year distribution period

$230,000

$230,000

ESOP limit for determining the maximum account balance subject to the general five-year distribution period

$1,150,000

$1,165,000

HEALTH AND WELFARE PLAN LIMITS (guidance links hereherehere and here)

Health Flexible Spending Accounts

Maximum salary reduction limit

$2,750

$2,750

Health FSA Carryover Limit

$500

$550

Dependent Care Flexible Spending Accounts±

If employee is married and filing a joint return or if the employee is a single parent

$5,000

$5,000

In employee is married but filing separately

$2,500

$2,500

Excepted Benefit Health Reimbursement Arrangements

$1,800

$1,800

Qualified Transportation Fringe Benefit and Qualified Parking (monthly limit)

$270

$270

High Deductible Health Plans (HDHP) and Health Savings Accounts (HSA)

HDHP – Maximum annual out-of-pocket limit (excluding premiums):

Self-only coverage

$6,900

$7,000

Family coverage

$13,800

$14,000

HDHP – Minimum annual deductible:

Self-only coverage

$1,400

$1,400

Family coverage

$2,800

$2,800

HSA – Annual contribution limit:

Self-only coverage

$3,550

$3,600

Family coverage

$7,100

$7,200

Catch-up contributions (age 55 or older)±

$1,000

$1,000

SOCIAL SECURITY WAGE BASE (guidance link)

Social Security Maximum Taxable Earnings (dollars)

$137,700

$142,800

Plan sponsors should update payroll and plan administration systems for the 2021 cost-of-living adjustments and should incorporate the new limits in relevant participant communications, like open enrollment materials and summary plan descriptions.


* The dollar limits are generally applied on a calendar year basis; however, certain dollar limits are applied on a plan-year, tax-year, or limitation-year basis.
± Not indexed for cost-of-living adjustments.

© 2020 McDermott Will & EmeryNational Law Review, Volume X, Number 300
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TRENDING LEGAL ANALYSIS

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About this Author

Jeffrey M. Holdvogt, Employee Benefits, Executive Compensation, McDermott Will Emery, Law Firm
Partner

Jeffrey M. Holdvogt is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office. 

Jeffrey focuses on matters related to employee benefits and executive compensation, including pension, profit sharing, 401(k), ESOPs, welfare and nonqualified deferred compensation plans.   Prior to joining McDermott, Jeffrey served as a law clerk for the Honorable Paul H. Anderson and James H. Gilbert of the Minnesota Supreme Court.

While in law school, he was an...

312-984-7564
Jacob Mattinson Employee Benefits Attorney
Associate

Jacob M. Mattinson focuses his practice on employee benefits and matters related to 401(k), 403(b), pension, executive compensation, health care reform, and cafeteria and welfare plans.

Jacob assists clients in drafting employee benefit plan documents and amendments. He represents clients in matters before the Internal Revenue Service (IRS), US Department of Labor (DOL) and Pension Benefit Guaranty Corporation with respect to plan qualification issues. He also counsels privately and publicly held corporations and tax-exempt entities on a variety of benefits and Employee Retirement...

312-984-3263
Brian J. Tiemann, Labor Attorney, McDermott Law Firm
Partner

Brian J. Tiemann is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office.   Brian focuses his practice on a variety of employee benefits matters related to pension plans, 401(k) plans, employee stock ownership plans (ESOPs), cafeteria and welfare plans, executive compensation and the implementation of benefit programs for domestic partners of employees.  He is a member of the Firm’s ESOP Affinity Group and has worked with clients to structure and maintain the qualified status of their ESOPs with the Internal Revenue...

312-984-3268
Judith Wethall, McDermott Law Firm, Chicago, Labor and Employment Law Attorney
Partner

Judith Wethall focuses her practice on employee benefits, specifically health and welfare programs. She counsels employers, plan administrators, insurers and consultants on a wide range of ERISA compliance issues. Judith's clients include sole proprietors to Fortune 100 companies and cover a variety of industries including health care, technology, manufacturing, insurance and financial.

Judith has extensive experience advising clients on health care law reform; wellness programs; Medicare secondary payor rules; fiduciary compliance; disability...

312-984-7577
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