The IRS released plan contribution limits for 2021 which for the most part will not change from the 2020 limits. The Social Security Administration also released the cost of living adjustment (COLA) for 2021.
- Social Security COLA. The Social Security COLA is set at 1.3% for 2021. This rate is calculated based on the Consumer Price Index from the Department of Labor’s Bureau of Labor Statistics. It is one of the lowest adjustments ever issued.
- Health FSA Limit. Contributions to a health flexible spending account plan are capped at $2,750 for 2021 which is the same as the dollar cap in 2020. The maximum permissible carryover amount remains at $550.
- Dependent Day Care FSA Limit. The $5,000/$2,500 contribution limit for dependent day care flexible spending account plans remains unchanged for 2021.
- Qualified Transportation Limit. The monthly limit that may be excluded from income for qualified parking benefits remains at $270 in 2021 as does the combined monthly limit for transit passes and vanpooling expenses.
- Adoption Expenses. The maximum amount that may be excluded from gross income under an employer-provided adoption assistance program for the adoption of a child will be $14,440 in 2021, up from $14,300.
- Retirement Plans. The elective deferral limit for 401(k) Plans remains at $19,500 in 2021 and the catch-up limit remains at $6,500. The dollar limit on the maximum permissible allocation under a defined contribution plan is increased from $57,000 to $58,000. The maximum annual benefit under a defined benefit plan stays at $230,000. The maximum amount of annual compensation that may be taken into account under a qualified plan increases from $285,000 to $290,000.
Employers should administer their 2021 plans in compliance with new revised limits.
