We’re doing some compensation planning for next year. What are the 2012 Highly Compensated Employee Limits?
Answer: The IRS has just released updated information for 2012.
IRS Releases 2012 Highly Compensated Employee Limits in IR-2011-103
In IR-2011-103, the Internal Revenue Service (IRS) announced that for 2012 the Highly Compensated Employee Limitation under §414(q)(1)(B) of the Internal Revenue Code of 1986 will increase to $115,000. Non-discrimination testing in some types of retirement plans limits the deferral rate of “highly compensated employees” (HCEs) based upon the deferral rate (ADP) of the “non-highly compensated employees”.
Highly Compensated Employee Compensation Limit Had Been $110,000
For 2012 plan year testing, an HCE is anyone who was a “5-percent owner” at any time during 2011 or 2012 or anyone who received in excess of $110,000 in compensation during 2011 and, if elected by the employer, is in the top twenty percent of employees based upon compensation. The HCE limit was also $110,000 for 2010 and 2011 plan year testing. The new $115,000 limit for 2012 is to be used for 2013 plan year testing.
Look-back Provision Impacts HCE Testing Period
Since the law includes a look-back provision, employees who earned more than $110,000 in 2010 are generally considered HCEs for 2011 plan year testing, employees who will earn more than $110,000 in 2011 are generally considered HCEs for 2012 plan year testing, and employees who will earn more than $115,000 in 2012 are generally considered HCEs for 2013 plan year testing.
Contact Vision Payroll for More Information on HCEs