Quick Overview of the Increased Tax Limits Affecting Businesses for 2020

An array of tax-related limits that affect businesses are annually indexed for inflation, and many have increased for 2020. Here are some that may be important to you and your business.

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Social Security Tax

The amount of employees’ earnings that are subject to Social Security tax is capped for 2020 at $137,700 (up from $132,900 for 2019).

Deductions

• Section 179 expensing:
• Limit: $1.04 million (up from $1.02 million for 2019)
• Phaseout: $2.59 million (up from $2.55 million)

• Income-based phase-out for certain limits on the Sec. 199A qualified business income deduction begins at:
• Married filing jointly: $326,600 (up from $321,400)
• Married filing separately: $163,300 (up from $160,725)
• Other filers: $163,300 (up from $160,700)

Retirement Plans

• Employee contributions to 401(k) plans: $19,500 (up from $19,000)
• Catch-up contributions to 401(k) plans: $6,500 (up from $6,000)
• Employee contributions to SIMPLEs: $13,500 (up from $13,000)
• Catch-up contributions to SIMPLEs: $3,000 (no change)
• Combined employer/employee contributions to defined contribution plans (not including catch-ups): $57,000 (up from $56,000)
• Maximum compensation used to determine contributions: $285,000 (up from $280,000)
• Annual benefit for defined benefit plans: $230,000 (up from $225,000)
• Compensation defining a highly compensated employee: $130,000 (up from $125,000)
• Compensation defining a “key” employee: $185,000 (up from $180,000)

Other Employee Benefits

• Qualified transportation fringe-benefits employee income exclusion: $270 per month (up from $265)
• Health Savings Account contributions:
• Individual coverage: $3,550 (up from $3,500)
• Family coverage: $7,100 (up from $7,000)
• Catch-up contribution: $1,000 (no change)
• Flexible Spending Account contributions:
• Health care: $2,750 (up from $2,700)
• Dependent care: $5,000 (no change)

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These are only some of the tax limits that may affect your business and additional rules may apply. If you have questions, please contact us.