Now is the time to make your employee benefits plans for the coming year.
What you offer depends on what your company can afford, so check your budget and line up what to offer employees in addition to any salary or wage increases you may make. Keep in mind that most employee benefits are not subject to payroll taxes (look at the chart on page 6 of IRS Publication 15-B), so offering them is less costly than merely increasing wages.
The following is a list of some key benefits to consider and the limitations that apply for 2020. Be sure to comply with notice requirements for certain types of benefits (check with your CPA or a benefits expert on this).
Contributions to retirement plans.
There are various ways to help employees save for retirement.
- Elective deferrals by employees to 401(k) plans in 2020 are capped at $19,500 ($26,000 for those who’ll be at least 50 years old by the end of the year). If your business also makes contributions to employees’ accounts, project what this will be for the coming year.
- If you have a profit-sharing plan or SEP, the contribution limit is $57,000.
- If you have a defined benefit (pension) plan, the benefits limit is $230,000.
Note: The maximum amount of compensation taken into account in figuring contributions and benefits is limited in 2020 to $285,000.
Payments for health coverage.
There are also various ways in which you can ensure that your employees have health coverage.
- If you have a qualified small employer health reimbursement arrangement (QSEHRA), reimbursements are capped at $5,250 for self-only coverage and $10,600 for family coverage.
- You can offer a high-deductible health plan (HDHP) and make contributions to employees’ Health Savings Accounts (HSAs). For 2020, an HDHP is coverage with a minimum deductible of $1,400 for self-only coverage and $2,800 for family coverage (plus a cap on out-of-pocket costs not exceeding $6,900 for self-only coverage and $13,800 for family coverage). The cap on contributions to HSAs in 2020 is $3,550 for those with self-only coverage or $7,100 for those with family coverage (plus another $1,000 for someone age 55 or older by year end but not yet receiving Medicare).
- Small employers that obtain coverage through a government marketplace may qualify for a tax credit if they pay at least 50% of the premiums. The full credit applies only if average compensation in 2020 does not exceed $27,600.
Various fringe benefits can be offered tax free to employees, including:
- Transportation fringe benefits (e.g., free parking, monthly transit passes): $270 per month
- Adoption assistance: $14,300
Employers can enable employees to:
- Pay for certain benefits on a pre-tax basis by setting up a cafeteria plan and withholding employee contributions.
- The maximum annual salary reduction amount for 2020 is $2,750.
One of the key areas in which some employees are seeking assistance is with the repayment of their student loans.
There have been various bills proposed in Congress to help with this, such as expanding the current $5,250 exclusion for employer-paid education assistance to cover loan repayment.
Watch for possible developments in the coming year.