HARMON CURRAN NONPROFIT LAW BLOG

The IRS has announced inflation-adjusted rates and limits for 2021, some of which have changed since 2020.

Low Cost Article

The unrelated business income of certain tax-exempt organizations does not include proceeds from the distribution of “low cost articles” related to charitable solicitations (such as mugs or key chains imprinted with the organization’s logo). For the 2021 tax year, a low cost article is an article costing $11.30 or less, a ten cent increase from 2020.

2021: $11.30

2020: $11.20

Other Insubstantial Benefits

In Revenue Procedure 90-12 (as amplified by Rev. Proc. 92-49 and modified by Rev. Proc. 92-102), the IRS provided guidelines for charitable organizations regarding the deductibility of contributions by donors who receive something in return for their payments. The original guidelines stated that even when donors receive benefits in return for their donations, they may still deduct the entire amount donated under one of the following two circumstances:

1. If, for a contribution of $25 or more, the contributor did not receive something in return that costs more than $5, or the rate of a “low cost article,” as described above; or
2. If the fair market value of all the benefits received in connection with the donation is not more than 2% of the payment, or $50, whichever is less.

The $5/$25/$50 schedule is adjusted annually for inflation. For the 2021 tax year, the schedule has been increased to $11.30, $56.50, and $113 respectively.

2021: $11.30/$56.50/$113.00

2020: $11.20/$56.00/$112.00

Mileage

Effective January 1, 2021, the mileage rate for business use of a vehicle is 56 cents per mile—a decrease from the 57.5 cents per mile rate for 2020. The mileage rate for use of a vehicle for medical or moving purposes also decreased in 2021 to 16 cents per mile from 17 cents. The standard mileage deduction rate for volunteer or charitable use of a vehicle remains 14 cents per mile.

2021:

56¢/mile for business use

16¢/mile for medical or moving purposes

14¢/mile for volunteer or charitable use

2020:

57.5¢/mile for business use

17¢/mile for medical or moving purposes

14¢/mile for volunteer or charitable use

Lobbying Expenditure Notice Exemption

Internal Revenue Code Section 6033(e) requires certain tax-exempt organizations that pay or incur non-deductible lobbying expenditures to provide their members and supporters, at the time dues (or other similar amounts) are assessed or paid, with a reasonable estimate of the portion of dues that is allocable to such expenditures. In 1998, the IRS issued Revenue Procedure 98-19, which established that 501(c)(4) social welfare organizations and 501(c)(5) agricultural and horticultural organizations are exempt from this notification requirement if more than 90% of their annual dues (or similar amounts) are received from persons, families or entities who pay $75 or less. This annual dues limitation is indexed for inflation, and has increased to $120 for the 2021 tax year.

2021: $120

2020: $119

Annual Exclusion for Gifts

The annual gift tax exclusion remains unchanged at $15,000. The first $15,000 worth of gifts to any person during the year (other than gifts of future interests in property) will not be included in the total value of taxable gifts.

2021: $15,000

2020: $15,000

Retirement Plan Limits

Some of the key annual limits related to retirement plans have increased for 2021. The limit on total contributions to a defined contribution plan, such as a 401(k) or 403(b), rose from $57,000 to $58,000. Also increasing in 2021 is the maximum amount of an employee’s compensation which can be considered under a qualified pension, profit-sharing or stock bonus plan. The new limit is $290,000, a $5,000 increase over the 2020 limit.

Other key limits remain the same in 2021. The most an employee participating in a 401(k) or 403(b) may contribute to the plan remains unchanged at $19,500 in 2021, with a “catch-up” contribution of $6,500 (also unchanged from 2020) allowed for employees aged 50 and older. The limit on annual contributions to an IRA remains $6,000, and the additional catch-up contribution to an IRA for those 50 and older stays $1,000. The maximum limit on annual benefits under a pension or defined benefit plan remains unchanged at $230,000, The compensation threshold for who constitutes a “highly compensated employee” remains unchanged at $130,000.

Healthcare Flexible Spending Account Limits

In 2021, the amount employees may contribute to a health flexible spending account (FSA) without paying income or employment taxes remains unchanged at $2,750.

2021: $2,750

2020: $2,750