Who are highly compensated employees (HCEs) and key employees?

Written by Aimee Reynard
Updated 6 months ago

For Cafeteria Plans:

A “highly compensated employee (HCE)” is:

  • An officer; or
  • A shareholder who owns more than 5%; or
  • An individual with annual compensation in excess of the following: ($155,000 for year 2024, $150,000 for year 2023, $135,000 for year 2022)
  • Spouses or dependents of individuals in the first three categories above

A “key employee” is someone who, during the preceding year:

  • Was an officer with an annual compensation in excess of the dollar limit for that year ($220,000 for year 2024, $215,00 for year 2023, $200,000 for year 2022)
  • Owned more than 5% of the business
  • Owned more than 1% of the business and had an annual compensation greater than $150,000

For FSAs and HRAs:

An HCE is:

  • One of the 5 highest paid officers; or
  • A shareholder owning more than 10%; or
  • Someone who is among the highest paid 25% of ALL employees; or
  • Spouses or dependents of individuals in the first three categories abo

For DCAs:

An HCE is:

  • A shareholder owning more than 5% during the past or current year; or
  • An individual with compensation during the past or current year exceeding: $155,000 for year 2024; $150,000 for year 2023; $135,000 for year 2022: if they were not an employee during the preceding year, we would use their anticipated salary for the current year; OR
  • Spouses or dependents of individuals in the first three categories

 

This information may be found in IRS Publication 15-B.

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