It’s 2021, and we all hope this year brings health, happiness, and prosperity to all. With the new year comes new guidelines for many aspects of accounting, so let’s dive right into the changes, updates, and other information you’ll need for your business accounting.
CARES Act Rules
The CARES Act provided economic relief to American workers and healthcare workers during the coronavirus crisis. First passed in March, the act was intended to provide aid and economic support to workers negatively impacted by the COVID-19 crisis. Several components of the ACT provided direct financial aid as well as assistance to businesses and individuals.
Several elements are involved in the CARES Act relief bill, but the ones potentially impacting nonprofits and their employees include:
- Penalty for early withdrawal of IRA funds is waived on up to $100,000 withdrawn for coronavirus reasons.
- For nonitemizers, up to $300 of cash donations may be deducted.
- For itemizers, deduct charitable contributions of up to100% of AGI (adjusted gross income).
Nonprofits should seek to educate their donors about these changes to encourage additional donations. The Journal of Accountancy provides a tax season preview that offers additional insights into various effects and impacts of the CARES Act.
Additional information is available from Welter Consulting on the provisions of the CARES act for nonprofit organizations.
Mileage Reimbursement Changes
The business mileage rate is 56 cents per mile. Business mileage is no longer deductible as an unreimbursed employee business expense. Charitable services rate is 14 cents per mile.
Retirement Plan Limits
The maximum employee 401K deferral remains at $19,500 with $6,500 additional “catch up” for employees age 50 and older. The overall plan limit moves from $57,000 to $58,000. The defined benefit plan maximum is at $230,000.
The Roth IRA contribution limit is $6,000 with an added $1,000 for “catch up” for 50 and over. The Roth IRA contribution limit phaseout (MAGI) is $196,000 to $206,000 for married, filing jointly, and $124,000 to $139,000 for single head of household. Married, filing separately ranges from 0 to $10,000.
The SEP minimum required compensation is $600. The compensation limit for determining maximum allowable contributions by employer is $285,000.
Social Security Changes
The Social Security Administration also published their set of guidelines for 2021. This includes the number of credits needed to accrue from time in the workforce to qualify for social security, and much more. All employees of nonprofit organizations must still pay into the social security system; working for a tax-exempt organization does not exempt individuals from paying taxes, including social security and Medicare taxes.
Looking for Additional Information?
The IRS now has an opt-in form for exempt organizations to sign up for their ongoing news briefs. Each news brief contains an update about new materials for exempt organizations and links to the IRS publication pertaining to the update. It’s a time-saving service for nonprofits and available directly on the IRS website.
As the new year progresses, stay informed of the latest news from the accountancy and tax world for nonprofits right here at Welter Consulting. Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.