Many Tax Amounts Affecting Businesses Have Increased for 2021
- Find out how some tax-related limits that affect businesses have changed for 2021.
- Discover the new cap for earnings subject to Social Security tax.
- Learn how a few important business deductions have changed.
- Discover some important changes to retirement plans and other employment benefits.
A number of tax-related limits that affect businesses are annually indexed for inflation, and many have increased for 2021. However, some stayed the same due to low inflation. Also, the deduction for business meals has doubled for this year after a new law was enacted at the end of 2020. Here’s Fiducial’s rundown of those that may be important to you and your business.
Social Security tax
The amount of employees’ earnings that are subject to Social Security tax is capped for 2021 at $142,800 (up from $137,700 for 2020).
Deductions
Section 179 expensing:
- 1. Limit: $1.05 million (up from $1.04 million for 2020)
- 2. Phaseout: $2.62 million (up from $2.59 million)
Income-based phase-out for certain limits on the Sec. 199A qualified business income deduction begins at:
- 1. $329,800 (up from $326,600) for married filing jointly
- 2. $164,925 (up from $163,300) for married filing separately
- 3. $164,900 (up from $163,300) for other filers.
Business meals tax deduction
The deduction for eligible business-related food and beverage expenses provided by a restaurant are up from 50% to 100% in 2021.
Retirement plans
These contributions remain unchanged from 2020:
- Employee contributions to 401(k) plans: $19,500 (unchanged from 2020)
- Catch-up contributions to 401(k) plans: $6,500 (unchanged)
- Employee contributions to SIMPLEs: $13,500 (unchanged)
- Catch-up contributions to SIMPLEs: $3,000 (unchanged)
A few positive changes to note:
- Combined employer/employee contributions to defined contribution plans: $58,000 (up from $57,000)
- Maximum compensation used to determine contributions: $290,000 (up from $285,000)
- Annual benefit for defined benefit plans: $230,000 (up from $225,000)
These defining compensation amounts remain the same:
- Compensation defining a highly compensated employee: $130,000 (unchanged)
- Compensation defining a “key” employee: $185,000 (unchanged)
Other employee benefits
- Qualified transportation fringe-benefits employee income exclusion: $270 per month (unchanged)
- Health Savings Account contributions:
- Individual coverage: $3,600 (up from $3,550)
- Family coverage: $7,200 (up from $7,100)
- Catch-up contribution: $1,000 (unchanged)
- Flexible Spending Account contributions:
- Health care: $2,750 (unchanged)
- Dependent care: $5,000 (unchanged)
These are only some of the tax limits that may affect your business and additional rules may apply. Have questions about these tax changes coming for 2021? Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations to discuss your situation.
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For more small business COVID-19 resources, visit Fiducial’s Coronavirus Update Center to find information on SBA loans, tax updates, the Paycheck Protection Program, paid sick and family leave, and more.
