Tax Limits Impacting Your Business in 2020

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A variety of tax-related limits that affect businesses are adjusted yearly for inflation. It appears that many of those limits have increased for 2020. We want to bring those increases to your attention as they may affect your business.

What are the Social Security tax limits?

The amount of employees’ earnings that are subject to the Social Security tax limit for 2020 has been set at $137,700. This limit is an increase from the level set in 2019, which was $132,900.

How are the deductions affected?

Section 179 expensing’s 2020 limit is at $1.04 million, an increase from 1.02 million in 2019. The phase-out limit is set at $2.59 million, which is up from $2.55 million.

Section 199A has new limits for income-based phase-out starts at $326,600 for those who are married and filing jointly. For those who chose to file separately but are still married, the limit has been raised to $163,300, which is up from $!60,725. Any other tax filers have limits in 2020 that start at $163,300.

How do limits affect retirement plans?

Limits on retirement contributions have also increased. Employee contributions to 401(k) plans have been raised to $19,500. Catch-up contributions to 401(k) retirement plans have also been raised to $6,500, up from $6,000 last year. Likewise, employee contributions and catch-up contributions to SIMPLEs have also increased to $13,500 and $3,000, respectively. There are several other limits in place that will affect retirement accounts. The maximum compensation that will affect contributions has been increased to $285,000, up from $280,000. Annual benefits for defined benefit plans have also increased to $230,000. Other increases include compensation defining a highly compensated employee has been raised to $130,00 while compensation defining a “key” employee has been raised from $180,000 in 2019 to $185,000 in 2020. Last but not least, the combined employer and employee contributions to defined contribution plans is raised to $57,00.

Several other employee benefits have also been affected, although limits have not been significantly raised. Qualified transportation fringe-benefits income exclusion has been raised to $270. Health savings account contributions also enjoy increased limits. Individual coverage has been raised to $3,550, while family coverage has been raised to $7,100. It is of note that catch-up contributions remain at $1,000. When considering limits on Flexible Spending account contribution, health care limits have risen to $2,750, while dependent care remains steady at $5000.These are only some of the tax limits that may affect your business, and additional rules may apply.

For more information, please call us at 949-860-9890 or click here to contact us. We look forward to speaking with you soon.