Looking forward to a much better 2021? After a year of twists and turns, you’re likely looking to reduce that feeling of uncertainty. Businesses of all types struggled last year—real estate, distribution and wholesale, food and beverage, professional services, manufacturing, construction and logistics, and more.

The U.S. government has been implementing major changes, such as shifts to unemployment benefits and Paycheck Protection Program funds. Keep your records organized and on hand to mitigate stress at reporting times. The taxable situation for these can be complicated, so be sure to discuss them with a trusted financial professional.

What exactly will the new year bring to you and your employees? We don’t have a crystal ball, but we do have a list of changes to help keep your finances in order.

ACA reporting

Providing health insurance to your employees? The ACA “affordability” percentage for 2021 is 9.83%, increasing slightly from 9.78% in 2020.

This means that employers subject to the ACA cannot charge employees more than 9.83% (of their household income) for the least-expensive self-only health insurance plan.

To determine your employees’ household income, you may use one or more of these three IRS safe harbor methods:

  • Employees’ Form W-2 Box 1 wages
  • Employee’s hourly rate of pay multiplied by 130 hours, or employee’s monthly salary
  • Federal poverty level for a household of one

Note that the above methods are solely for calculating ACA affordability.

Deadline for ACA reporting

A bit behind on ACA reporting? IRS Notice 2020-76 extended the deadline for employers to furnish ACA Form 1095-C or Form 1095-B to employees from January 31, 2021, to March 2, 2021.

This also extends the IRS’ good-faith effort relief. This means employers like you won’t be docked for submitting incomplete or inaccurate forms if they demonstrate the efforts to comply in good faith.

The deadlines for filing Form 1095-C and Form 1095-B with the IRS remain the same: February 28, if filing by paper, and March 31, if filing electronically.

Social Security wage base

The Social Security taxable wage base for 2021 is $142,800—a 3.7% increase from 2020. The employee’s and the employer’s Social Security tax rates remain at 6.2%.

The Medicare tax rate for 2021 is still 1.45% of all taxable wages, for both the employer and the employee.

Employees earning more than $200,000 for the year are still subject to an additional Medicare tax of 0.9%.

Health savings accounts and high-deductible health plans

Type 2021 Limits
HSA (employee + employer contributions) Self only = $3,600
Family = $7,200
HSA catch-up $1,000
HDHP minimum deductibles Self only = $1,400
Family = $2,800
HDHP maximum out-of-pocket costs Self only = $7,000
Family = $14,000

Data Source: IRS Revenue Procedure 2020-32

Health flexible spending accounts

There were no changes to the limit in 2021. $2,750 remains the limit for health care flexible spending accounts. However, the maximum carryover amount for 2021 has gone up to $550, an increase of $50.

Qualified commuter benefits

The contribution limit for pre-tax commuter benefits is $270—the same as in 2020. This is the maximum pre-tax amount that employees can set aside to pay for public transportation, ridesharing, vanpooling, and parking expenses.

401(k) contributions

Here are the 2021 contribution limits for 401(k) plans:

Maximum employee contribution: unchanged at $19,500.
Catch-up contribution for employees ages 50 and over: unchanged at $6,500.
Maximum employee + employer contribution, excluding catch-up: $58,000.

Other inflation adjustments

Married? Your standard deduction when filing jointly for tax year 2021 has risen to $25,100, up $300 from 2020.

If you are single or filing separately, the standard deduction rises to $12,550 for 2021, up $150.

For heads of households, the standard deduction will be $18,800 for tax year 2021, up $150.

For tax year 2021, the tax brackets and their limits are as follows:

  • 37% for incomes over $523,600 ($628,300 married filing jointly)
  • 35% for incomes over $209,425 ($418,850 married filing jointly)
  • 32% for incomes over $164,925 ($329,850 married filing jointly)
  • 24% for incomes over $86,375 ($172,750 married filing jointly)
  • 22% for incomes over $40,525 ($81,050 married filing jointly)
  • 12% for incomes over $9,950 ($19,900 married filing jointly)
  • 10% for incomes of $9,950 or less ($19,900 married filing jointly)

The bottom line? It’s been a complicated year for business owners across the Bay Area. Touch base with an expert tax professional to discuss your individual situation and make sure you’re on track for any adjustments.

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