The Internal Revenue Service has released Revenue Procedure 2020-45, a document that will set the parameters for many insurance and benefits arrangements for 2021.
The IRS publishes the annual parameters documents to provide taxpayers, tax advisors and others with the new, inflation-adjusted numbers needed to make some types of insurance and benefits tax rules work.
- A copy of IRS Revenue Procedure 20-45 is IRS Revenue Procedure 20-45available here.
- An article about the 2020 numbers is available here.
William Ruane, an official in the Office of the Associate Chief Counsel for Income Tax and Accounting, has returned as the principal author for the latest version of the popular insurance and benefits parameters guide.
Ruane may be one of the most closely read authors in the United States, and tax professionals may await his annual parameters guides as if they were new Star Wars movies, but the IRS has not released any details about him,
Here are 10 provisions from the document that could affect clients who have, or who are considering, life insurance, health insurance or long-term care insurance.
Numbers for Life Insurance and Estate Planning
- Unified Credit Against Estate Tax
To $11.y million for a decedent dying in 2021, from $11.58 million for a decedent dying in 2020.
- Gift Tax Exclusion
The exclusion for 2021 will be $15,000 for gifts to any person, and $159,000 for gifts to a spouse who is not a citizen of the United States. That compares with 2020 limits of $15,000 for gifts to any person, and $157,000 for gifts to a non-U.S. citizen spouse.
Numbers for Health Insurance and Benefits
- Cafeteria plans
The dollar limit for voluntary employee salary reductions for contributions to health flexible spending arrangements (FSAs) will continue to be $2,750.
- Cafeteria Plan Unused Amount Carryover Maximum
For 2021, the maximum will be $550. This maximum was increased in IRS Notice 2020-29.
- Medical Savings Accounts
The MSA is the ancestor of the HSA, and of the health reimbursement arrangement. An MSA holder is supposed to combine high-deductible health coverage with a special savings account.
For 2021, the acceptable deductible ranges will be $2,400 to $3,600 for self-only coverage, and $4,800 to $7,150 for family coverage, For 2020, the acceptable deductible ranges are $2,350 to $3,550 for self-only coverage, and $4,750 to $7,100 for family coverage.
The maximum annual out-of-pocket expense limits will increase to $4,800 for individuals and $8,750 for families, from $4,750 for individuals and $8,650 for families.
- Qualified Small Employer Health Reimbursement Arrangement
The maximum eligible employer reimbursement amounts for this program will increase to $5,300 for individual coverage and from $10,700 for family coverage, from $5,250 for individual coverage and $10,600 for family coverage.
- Affordable Care Act Premium Tax Credit Subsidy Clawbacks
The ACA premium tax credit subsidy helps low-income and moderate-income people pay for private individual and family major medical coverage purchased through the ACA public exchange system.
Most people who use the subsidy take it in the form of an “advance premium tax credit” (APTC) subsidy, based on how much money they might earn during a year.
After the year ends, APTC users and the government are supposed to reconcile any gaps between the APTC amounts received and what the APTC users should have received.
In some cases, reconciliation involves the government clawing back cash from APTC users who earned more than expected and received too much APTC subsidy help.
The ACA puts income-based limits, based on the ratio of a taxpayer’s income to the federal poverty level (FPL), on how much of the subsidy money the government can claw back.
Here’s what will happen to the clawback limits.
- Household income under 200% FPL: $325 (unchanged).
- Household income 200% to 299% FPL: $800 (unchanged).
- Household income 300% to 399% FPL: to $1,350 (unchanged).
- Household income under 200% FPL: $650 (up from $600).
- Household income 200% to 299% FPL: to $1,600 (unchanged).
- Household income 300% to 399% FPL: to $2,700, (up from $2,650).
Numbers for Long-Term Care Planners
- Eligible Long-Term Care Premiums
Clients who have high enough medical bills to benefit from itemizing their medical expenses can include at least some of their private long-term care insurance premiums in their medical expense total.
The amounts that can be included in the medial expense total vary by age.
Here’s how the 2021 “includible” premium levels compare with the 2020 levels:
- 40 or under: will increase to $450, from $430.
- More than 40 and up to 50: will increase to $850, from $810.
- More than 50 and up to 60: will increase to $1,690, from $1,630.
- More than 60 and up to 70: will increase to $4,520, from $4,350.
- 70 and older: will increase to $5,640, from $5,430.
- The Qualified Long-Term Care Insurance Contract or Life Insurance Contract Per Diem Limitation
The dollar limit on the benefits will increase to $400 per day, from $380 per day.
A Legislative Advocacy Number
- Reporting Exception Limit
The IRS offers a reporting exception for some tax-exempt organizations with nondeductible lobbying expenditures.
The reporting exception limit will increase to $120 or less for 2021, from $119 or less for 2020.
— Read 9 New 2018 Tax Numbers to Know, on ThinkAdvisor.