Changes in Your Business Payroll & Taxes for 2021
Every year, something changes in your business payroll & taxes. This year is especially tricky with tax changes as a result of the coronavirus pandemic. It caused several changes in your business taxes for 2021, with its new tax incentives, tax breaks and rules.
2020 Payroll Tax Holiday
In September, 2020, the Federal government allowed employers to defer taking payroll taxes until December 31, 2020. Now that tax holiday needs to be paid back. Employees need to know that the extra 6.2% that was added to their paychecks in 2020 will be taxed through this year’s Social Security withholding taxes.
Through the CARES Act, stimulus checks will not count as taxable income.
The CARES Act also provided Paycheck Protection (PPP) loans to help business owners through the pandemic. As long as the money was spent on specified business expenses like payroll, rent, utilities or mortgage interest, for example, the loan is forgiven. Eligible expenses paid with money from your PPP loan can be deducted from your taxable income as per a December 2020 IRS ruling). Get your loan forgiveness application approved by the Small Business Administration to qualify.
The Old Age, Survivors and Disability Insurance (OASDI) that is withheld from six-figure incomes increased to $142,800 in 2021, over $137,700 in 2020. This means taxes will be taken out of the first $142,800 earned in 2021.
FICA taxes will remain the same as in 2020. Expect to pay 6.2% for Social Security, 1.45% for Medicare on the first $200,000 earned, and 2.35% for wages exceeding $200,000 ($250,000 for joint returns and $125,000 for married, filing singly).
Related: Be Ready for Big Changes: 2021 Tax Planning
Health Flexible Spending Accounts
The limit remains at $2,750 for flexible health care spending accounts, however, the maximum you can carry over for 2021 has increased to $550 (a $50 increase).
Health Savings Accounts/High-Deductible Plans
HSA $3,600 (self only) or $7,200 (family)
HSA catch-up $1,000
HDHP minimum deductibles $1,400 (self only) or $2,800 (family)
HDHP maximum out-of-pocket costs $7,000 (self only) or $14,000 (family)
401(k) Contribution Limits for 2021
$19,500 Maximum employee contribution (unchanged)
$6,500 Catch-up contribution ages 50 and over (unchanged)
$58,000 Maximum employee + employer contribution, excluding catch-up
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