October 27, 2020
IRS releases 2021 inflation adjustments for fringe benefits and Form W-2 reporting penalties
In Revenue Procedure 2020-45 the IRS announced the inflation adjustments that will apply to various fringe benefits in 2021.
Medical Savings Account (MSA) limits go up in 2021
Summarized below are the 2021 limits that apply to MSAs under IRC Section 220(c)(2)(A).
Adoption assistance limit goes up in 2021
The limit on qualified adoption assistance (including benefits provided for special needs children) under IRC Section137 for 2021 is $14,440, up from $14,300 in 2020.
For 2021, the amount excludable from an employee's gross income begins to phase out under IRC Section 137(b)(2)(A) 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.
Health flexible spending arrangement (FSA) limit unchanged from 2020
The 2021 annual limit on the amount of pretax contributions employees can make toward their health flexible spending arrangement through a cafeteria plan under IRC Section 125(i) is $2,750, unchanged from 2020.
Transportation fringe benefits (parking and transit) limit unchanged from 2020
The 2021 monthly limit on parking benefits under IRC Section 132(f)(2)(B) is $270, unchanged from 2020.
The 2021 aggregate monthly limit for transportation in a commuter highway vehicle and any transit pass under IRC Section 132(f)(2)(A) is also $270, unchanged from 2020.
Foreign earned income exclusion for 2021
For tax years beginning in 2021, the foreign earned income exclusion amount under Section 911(b)(2)(D)(i) is $108,700.
Reporting penalties for Forms W-2/1099 increase for tax year 2021
The penalties that apply to late or incorrect Forms W-2 is indexed each year for inflation. Below are the penalties that apply to late or incorrect Forms W-2 required to be furnished to employees and/or filed with the Social Security Administration for tax year 2021 (filed in 2022).
EY Payroll News Flash