Regulatory Updates

IRS Announces 2021 Inflation-Adjusted Welfare Benefits

On October 26, 2020, the IRS published Revenue Procedure (Rev. Proc.) 2020-45, which provides the 2021 inflation-adjusted amounts for various provisions of the Internal Revenue Code (IRC), including employer-provided welfare benefits. Specifically, Rev. Proc. 2020-45 provides inflation adjusted limitations that apply to voluntary employee salary reductions under an IRC Section (Sec.) 125 cafeteria plan, fringe benefit exclusion amounts under an IRC Sec. 132(f) qualified transportation fringe benefit, and total amount of payments and reimbursements under an IRC Sec. 9831(d) qualified small employer health reimbursement arrangement (QSEHRA). Details are described below.

Cafeteria Plan
For taxable years beginning in 2021, the dollar limitation under IRC Sec. 125(i) on voluntary employee salary reductions for contributions to health flexible spending arrangements is $2,750. If the cafeteria plan permits the carryover of unused amounts, the maximum carryover amount is $550.

Qualified Transportation Fringe Benefit
For taxable years beginning in 2021, the monthly limitation under IRC Sec. 132(f)(2)(A) for the aggregate fringe benefit exclusion for transportation in a commuter highway vehicle and any transit pass is $270. The monthly limitation under IRC Sec. 132(f)(2)(B) for the fringe benefit exclusion amount for a qualified parking benefit is $270.

QSEHRA
For taxable years beginning in 2021, to qualify as a QSEHRA under IRC Sec. 9831(d), the arrangement must provide that the total amount of payments and reimbursements for any year cannot exceed $5,300 ($10,700 for family coverage).

For additional information on the 2021 inflation-adjusted limits, see Rev. Proc. 2020-45.