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Updated thresholds and limits for 2021

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Updated thresholds and limits for 2021

By: Dean Dorton | November 30, 2020

This article reviews some thresholds and limits for 2021, such as the standard deduction, Social Security benefits, adjustments for retirement accounts, gift taxes, and more.

2020 Winter Edition | News & Views | Tax | Wealth & Estate Planning

FICA base
Annual compensation to which Social Security tax applies is $142,800 for 2021 (up from $137,700 in 2020).

Social Security benefits
Individuals who are drawing Social Security benefits before attaining full retirement age will begin to suffer reductions in payments if they have earned income exceeding $18,960 in 2021 (up from $18,240 in 2020).

Adjustments for retirement accounts
The maximum annual addition to a defined contribution plan is increased to $58,000 for 2021 (up from $57,000 for 2020), and the corresponding maximum amount of compensation that can be considered as the base for retirement plan contributions is $290,000 for 2021 (up from $285,000 for 2020).

Individual Retirement Account (IRA) limits, elective deferral limits, and catch-up contribution limits have remained the same for 2021. So, even though the total retirement plan contribution has increased to $58,000, the maximum amount individuals can elect to contribute to employer-sponsored plans remains $19,500.

Year IRAs SIMPLE IRA Plans Other Employer Plans
Annual Contribution Catch-Up Contribution Elective Deferral Catch-Up Contribution Elective Deferral Catch-Up Contribution
2020 $6,000 $1,000 $13,500 $3,000 $19,500 $6,500
2021 $6,000 $1,000 $13,500 $3,000 $19,500 $6,500

Kentucky’s pension income exclusion
The amount of retirement income excludable from tax in Kentucky remains $31,110 for 2021.

Health savings accounts
The limits on contribution deductions for 2021 are $3,600 for self-only coverage (up $50 from 2020) and $7,200 for family coverage (up $100 from 2020). The additional “catch-up” contribution allowable for those age 55 or older remains $1,000.

Health flexible spending arrangements
The maximum voluntary employee salary reduction for employer-adopted FSAs (flexible spending arrangements) is $2,750 for 2021 (unchanged from 2020).

Estate tax
Federal estate, gift, and generation-skipping taxes will apply to cumulative subject transfers exceeding $11,700,000 in 2021, up from $11,580,000 in 2020.

Gift taxes
The annual exclusion for gifts per donee remains at $15,000 for 2021. The exclusion for gifts given to non-citizen spouses is increased to $159,000 (up from $157,000 in 2020).

Nanny tax
Cash wages paid for domestic service in the employer’s home of less than $2,300 are not subject to FICA in 2021 (up from $2,200 in 2020).

This article was originally published in News & Views (Dean Dorton’s quarterly newsletter).

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