The IRS has announced contribution and benefit limits for 2021.
On October 26, 2020 the IRS announced retirement plan contribution limits for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan. For tax year 2021 the annual contribution limit remains unchanged from 2020 at $19,500.
The catch-up contribution limit for employees aged 50 and over who participate in these plans also remains unchanged from 2020 at $6,500.
For tax year 2021 the annual contribution limit for Flexible Spending Account and Dependent Care accounts remain unchanged from 2020 at $2,750 and $5000, respectively.
Social Security Wage Base for 2021 Announced
On October 13, 2020, the Social Security Administration (SSA) announced that the 2021 Social Security wage base will be $142,800, which is an increase of $5,100 from $137,700 in 2020.
There is no limit to the wages subject to the Medicare tax; therefore, all covered wages are still subject to the 1.45% tax. As in 2020, wages paid in excess of $200,000 in 2021 will be subject to an extra 0.9% Medicare tax withholding that will only be withheld from employees' wages, as employers do not pay the extra tax.
The Federal Insurance Contributions Act (FICA) tax rate, which is the combined Social Security tax rate of 6.2% and the Medicare tax rate of 1.45%, will be 7.65% for 2021 up to the Social Security wage base. The maximum Social Security tax employees and employers will each pay in 2020 is $8,853.60. This is an increase of $316.20 from $8,537.40 in 2020.
The Social Security wage base for self-employed individuals in 2021 will also be $142,800. There is no limit on covered self-employment income that will be subject to the Medicare tax. The self-employment tax rate will be 15.3% (combined Social Security tax rate of 12.4% and Medicare tax rate of 2.9%) up to the Social Security wage base. In 2021, the maximum Social Security tax for a self-employed individual will be $17,707.20.
For a copy of the SSA Fact Sheet please visit www.ssa.gov.
Response to Executive Order - Payroll Tax Deferral Update
In response to the coronavirus (COVID-19) pandemic, President Donald Trump signed an executive order on August 8, 2020 directing the U.S. Secretary of the Treasury to defer the withholding, deposit and payment of the Social Security tax for pay dates paid between September 1 and December 31, 2020. The deferral does not apply to all payroll taxes, only the employee portion of Social Security taxes.
It is important to note that this program is considered a tax deferral, not an exemption and therefore this tax deferral is subject to payment at a later date. Guidance issued on August 28, 2020 indicates that the employee portion of the deferred payroll taxes are required to be repaid to the federal government between January 1 and April 30, 2021. Interest and penalties begin to accrue on unpaid amounts as of May 1, 2021.
Employers would be required to collect the total applicable deferred taxes from the employee at the beginning of the 2021 calendar year. As a result, employees would experience an increase in withholding which would essentially be twice the normal amount, beginning with their first pay in January until fully repaid.
At this time, Loyola University Maryland will not be implementing the executive order to defer the withholding and depositing of the employee portion of Social Security taxes. In our opinion and on the advice of external organizations, the deferral measure raises serious practical hurdles and has come under criticism and skepticism from legal experts, economists, and business groups, including the U.S. Chamber of Commerce
After considering the serious questions regarding the statutory and regulatory authority for this action, as well as the many unaddressed specifics related to its implementation and potential legal and employee relations issues that could arise from its implementation, we will not be implementing this payroll tax deferral program at this time.
Loyola University Maryland will continue to closely monitor this executive order and will provide employees with additional information should our current position change.
Do you need to do a "Paycheck checkup"?
In 2019, the Internal Revenue Service (IRS) released a new online Tax Withholding Estimator (the “Estimator”), which has been redesigned to make it easier for employees to have the right amount of tax withheld during the year. In some cases taxpayers may be faced surprise tax bills, or refunds that were lower than expected because their withholding wasn’t adjusted for tax law changes or revised annual tax withholding charts.
Important to Note: Due to the Tax Cuts and Jobs Act of 2017, the Internal Revenue Service (IRS) has released a new version of the federal Form W-4 (Employee Withholding Allowance Certificate) for 2020.
If you need to complete a new W-4 form, submit the signed form to email@example.com for processing. Employees can review the 2020 Form W-4 to familiarize themselves with changes and also view a list of common 2020 W-4 questions.
Current employees will not be required to complete the 2020 Form W-4; however, if they want to adjust their withholding, the 2020 Form W-4 will be the only option after 2019.
Your 2019 and prior year W-2s are online!
For current and active employees: To access you W2: log on to Inside Loyola. Under Web Advisor expand Web Advisor for Faculty/Employees/Students, click on "Employee Profile" then "Tax Information". Once you consent to the electronic version, click on the tax year of the form you want to view. If the form appears but no amounts in the boxes, save the PDF and reopen from Adobe.
For Students: Under Web Advisor, Click on "Financial Information" then "Tax Information".
For past employees: all 2019 W-2s were mailed to the home address on file on Monday, January 27, 2020.
2019 Maryland Earned Income Tax Credit (EITC)
As a Maryland employer, we are required to provide the 2019 Maryland Earned Income Tax Credit notice to you. Maryland’s EITC is a credit for certain taxpayers who have income and have worked. The state EITC reduces the amount of Maryland tax you owe. The local EITC reduces the amount of county tax you owe. Some taxpayers may
even qualify for a refundable Maryland EITC.
Most taxpayers who are eligible and file for a federal EITC can receive the Maryland state and local EITC. The allowable Maryland credit is up to one-half of the federal credit. To be eligible for the federal and Maryland EITC, your federal adjusted gross income and your earned income must be less than the following:
• $50,162 ($55,952 married filing jointly) with three or more qualifying children
• $46,703 ($52,493 married filing jointly) with two qualifying children
• $41,094 ($46,884 married filing jointly) with one qualifying child
• $15,570 ($21,370 married filing jointly) with no qualifying children
For more information about the federal EITC, visit: www.irs.gov/individuals or call the IRS at 1-800-829-1040.