2019 Highly Compensated Employee Threshold
For 2019, the Highly Compensated Employee Threshold is $125,000 (Highly compensated employee threshold) and $180,000 (Key employee threshold).
Effective 2019-01-01Source: Notice 2018-83 (IRS)Verified 2026-08-29
Compared with 2018
| Item | 2018 | 2019 | Change |
|---|---|---|---|
| Highly compensated employee threshold | $120,000 | $125,000 | +$5,000 (+4.2%) |
| Key employee threshold | $175,000 | $180,000 | +$5,000 (+2.9%) |
Who it applies to
Employers maintaining qualified retirement plans that must perform annual nondiscrimination testing, and their employees whose compensation determines highly compensated or key employee status.
What changed this year, and why
Effective January 1, 2019, the dollar amount used in the definition of "highly compensated employee" under IRC § 414(q)(1)(B) increased to $125,000, up from $120,000 in 2018. The related key employee threshold under § 416(i)(1)(A)(i) also increased to $180,000, up from $175,000 in 2018.
Common questions
- What is the highly compensated employee threshold used for?
- For 2019, the prior-year compensation amount used to identify a highly compensated employee under IRC § 414(q)(1)(B) is $125,000. An employee who earned more than this amount in the preceding look-back year is treated as highly compensated for plan nondiscrimination testing in 2019.
- How does the highly compensated employee threshold differ from the key employee threshold?
- For 2019, the key employee threshold under IRC § 416(i)(1)(A)(i) is $180,000. This is used to determine top-heavy plan status.
The 5% owner test ignores what you are paid
The definition of a highly compensated employee has two separate prongs, and the first one is based entirely on ownership rather than pay. An individual is treated as highly compensated if that person owned more than 5% of the interest in the business at any time during the year or the preceding year. The phrase "regardless of how much compensation that person earned or received" makes clear that the ownership test applies without regard to salary. Even if the owner took no wages, received only a modest draw, or was paid below every other employee, the 5% ownership alone is enough to trigger the status. This matters because highly compensated employees are subject to stricter nondiscrimination testing. The second prong, by contrast, does look at compensation and uses the $125,000 threshold for 2019. Employers applying the rules need to check both prongs separately, because an owner who would not meet the compensation test can still be caught by the ownership test.
Owned more than 5% of the interest in your business at any time during the year or the preceding year, regardless of how much compensation that person earned or received;
Publication 560 (2019), Retirement Plans for Small Business (IRS)
The top 20% election an employer may make
Under the second prong of the highly compensated employee definition, an employer can optionally apply an additional test to narrow the group. For the preceding year, if an employee received compensation above the threshold (more than $125,000 for 2019), the employer may choose to require that the employee also rank among the highest-paid workers to be counted as highly compensated. This optional ranking filter is sometimes called the "top-paid group election." When the employer makes this election, only employees who exceed the compensation threshold and also fall within the highest-paid segment are classified as highly compensated under the compensation prong. This gives employers a way to limit the number of highly compensated employees for nondiscrimination testing purposes. The election applies only to the compensation-based prong and has no effect on the ownership-based prong, which operates independently of how much anyone earns.
more than $125,000 (if the preceding year is 2019), more than $130,000 (if the preceding year is 2020), and, if you so choose, was in the top 20% of employees when ranked by compensation.
Publication 560 (2019), Retirement Plans for Small Business (IRS)
Key employees and the 60% top-heavy test
A plan is considered top-heavy when the total value of accrued benefits or account balances of key employees exceeds 60% of the total value for all employees. When a plan meets this test, it must satisfy additional requirements designed primarily to provide minimum benefits or contributions for non-key employees covered by the plan. Most qualified plans must contain provisions that meet the top-heavy requirements and will take effect in plan years in which the plans are top-heavy. The key employee threshold for 2019 is $180,000, which determines who counts as a key employee for purposes of the 60% test. These qualification requirements for top-heavy plans are explained in section 416 and its regulations.
A plan is top-heavy for a plan year if, for the preceding plan year, the total value of accrued benefits or account balances of key employees is more than 60% of the total value of accrued benefits or account balances of all employees.
Publication 560 (2019), Retirement Plans for Small Business (IRS)
A safe harbor plan skips the test entirely
The top-heavy plan requirements do not apply to SIMPLE 401(k) plans or to safe harbor 401(k) plans that consist solely of safe harbor contributions. This means that employers who adopt a safe harbor 401(k) plan can skip the annual top-heavy testing entirely. Qualified automatic contribution arrangements (QACAs) also are not subject to top-heavy requirements. By making safe harbor contributions - typically a 3% nonelective contribution or a matching contribution formula that satisfies IRS rules - the employer avoids not only the actual deferral percentage test but also the top-heavy test, reducing administrative complexity and ensuring compliance without annual discrimination testing.
The top-heavy plan requirements don't apply to SIMPLE 401(k) plans, discussed earlier in chapter 3, or to safe harbor 401(k) plans that consist solely of safe harbor contribu- tions, discussed later in this chapter.
Publication 560 (2019), Retirement Plans for Small Business (IRS)
How each figure was verified
Each number below was read from a stored copy of the document named beside it, and checked to occur word for word in the quoted sentence. The digest is of that stored text.
Notice 2018-83 (IRS)
- Highly compensated employee threshold
The limitation used in the definition of “highly compensated employee” under § 414(q)(1)(B) is increased from $120,000 to $125,000.
- Key employee threshold
The dollar limitation under § 416(i)(1)(A)(i) concerning the definition of “key employee” in a top-heavy plan is increased from $175,000 to $180,000.