IRS Announces 2020 Benefit Plan Contribution and Pension Plan Limits

November 08, 2019

On November 6, 2019, the Internal Revenue Service (IRS) announced via Revenue Procedure 2019-44 the dollar limitation for 2020 on employee salary reductions for contributions to health flexible spending accounts; the monthly limitation regarding the aggregate fringe benefits exclusion amount for transportation in a commuter highway vehicle and any transit pass; and the maximum amount that can be excluded from an employee’s gross income for the amounts paid for qualified adoption expenses furnished pursuant to an adoption assistance program.

It also announced via Notice 2019-59 the cost of living adjustments applicable to dollar limitations for pension plans and other items for tax year 2020.

Health Flexible Spending Accounts

The 2020 maximum employee salary reduction contribution to a health flexible spending account will increase to $2,750. This is a $50 increase from the 2019 limit of $2,700. The Affordable Care Act (ACA) had limited employee salary reductions for contributions to health flexible spending accounts to $2,500 per employee, but allowed that the limit may be adjusted annually for inflation in increments of $50.

The $2,750 limit applies to both full-purpose and limited-purpose health flexible spending accounts. However, an employer is not required to adopt the maximum amount allowed in its plan design and may choose to allow an amount less than $2,750. The $2,750 limit applies only to employee salary reduction contributions during the benefit plan year and does not impact employer-paid contributions or, if offered, contributions made as a result of the balance carryover option. If an employer provides flex credits that employees may elect to receive either as cash or as a taxable benefit, those flex credits are treated as employee salary reduction contributions and count toward the $2,750 limit.

The dependent care spending account maximum is set by statute and is not subject to inflation-related adjustments. Consequently, the 2020 dependent care spending account maximum continues to be limited to the smallest of the following amounts:

  • $5,000 if the employee is married and filing a joint return or if the employee is a single parent ($2,500 if the employee is married but filing separately);
  • the employee's “earned income” for the year; or
  • the spouse’s “earned income,” if the employee is married at the end of the taxable year.

Qualified Transportation/Parking Benefits

Transportation
The monthly limitation regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass is increased to $270 for 2020. This is a $5 increase over the 2019 limit of $265.

Parking
The monthly limitation regarding the fringe benefit exclusion amount for qualified parking is increased to $270 for 2020. This is a $5 increase over the 2019 limit of $265.

Adoption Assistance Programs

The maximum amount that can be excluded from an employee’s gross income for the amounts paid or expenses incurred by an employer for qualified adoption expenses furnished pursuant to an adoption assistance program for other adoptions by the employee in 2020 is $14,300. This is an increase of $220 over the 2019 maximum.

Summary of Changes to Contribution Limits

Summary of Changes Plans

For a copy of Revenue Procedure 2019-44, click on the link provided below.
https://www.irs.gov/pub/irs-drop/rp-19-44.pdf

Pension Plan Limits

A summary of the 2020 pension limitations as compared to 2019 are as follows:

Pension Plan Limits

The 2020 dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan, other than a plan described in Section 401(k)(11) or Section 408(p) for individuals age 50, is increased from $6,000 to $6,500. The 2020 dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals age 50 or over remains unchanged at $3,000.

For a copy of Notice 2019-59, click on the link provided below.
https://www.irs.gov/pub/irs-drop/n-19-59.pdf

ADP Compliance Resources

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Updated on November 8, 2019

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TAGS: Eye on Washington Legislative Updates Regulatory Compliance