2022 Highly Compensated Employee Threshold
For 2022, the Highly Compensated Employee Threshold is $135,000 (Highly compensated employee threshold) and $200,000 (Key employee threshold).
Effective 2022-01-01Source: Notice 2021-61 (IRS)Verified 2026-08-29
Compared with 2021
| Item | 2021 | 2022 | Change |
|---|---|---|---|
| Highly compensated employee threshold | $130,000 | $135,000 | +$5,000 (+3.8%) |
| Key employee threshold | $185,000 | $200,000 | +$15,000 (+8.1%) |
Who it applies to
Employers sponsoring qualified retirement plans, pension plans, and other tax-advantaged retirement arrangements subject to IRS nondiscrimination testing rules.
What changed this year, and why
Effective January 1, 2022, the IRS increased the highly compensated employee (HCE) threshold to $135,000 under IRC section 414(q)(1)(B). The key employee threshold for top-heavy plans also increased to $200,000 under section 416(i)(1)(A)(i).
Common questions
- What determines whether an employee is highly compensated?
- For 2022, an employee is classified as highly compensated if their prior-year compensation exceeded $135,000. This amount is adjusted annually for cost-of-living increases under IRC section 414(q)(1)(B).
- Does the HCE threshold affect other employee classifications?
- Yes. For top-heavy plan purposes, the key employee compensation threshold under IRC section 416(i)(1)(A)(i) is $200,000 for 2022.
The 5% owner test ignores what you are paid
Under the IRS definition of highly compensated employee, there are two independent tests. The first is the 5% owner test. If an individual owned more than 5% of the interest in the business at any time during the current year or the preceding year, that person is a highly compensated employee regardless of how much compensation that person earned or received. The ownership threshold is a strict bright-line test and does not take pay into account. The second test is the compensation test, which can include an optional top-paid-group election discussed elsewhere. Because the 5% owner test does not consider compensation, a business owner who takes little or no salary but still holds more than a 5% interest in the business is still treated as highly compensated for purposes of nondiscrimination and other qualified-plan rules. Employers must check both the current year and the preceding year to identify every 5% owner. Anyone who meets the 5% owner test is a highly compensated employee even if they would not otherwise meet the compensation threshold.
Highly compensated employee. A highly compensated employee is an individual who: • Owned more than 5% of the interest in your business at any time during the year or the preceding year, re- gardless of how much compensation that person earned or received;
Publication 560 (2022), Retirement Plans for Small Business (IRS)
The top 20% election an employer may make
The 2022 highly compensated employee threshold is $135,000 for the preceding year, but exceeding that amount does not automatically make someone a highly compensated employee. An employer may elect to add a top-paid-group filter: an employee who earned more than $135,000 in the preceding year is counted as highly compensated only if they were also in the top 20% of all employees when ranked by compensation. This optional election lets an employer narrow the highly compensated group, which in turn affects who is counted on the highly compensated side of the ADP and ACP nondiscrimination tests. The top-paid-group test is optional - employers can choose not to apply it - but if they do apply it, every highly paid employee who does not fall in the top 20% is treated as non-highly compensated for testing purposes. The ownership test, by contrast, has no top-paid filter: a business owner meeting the ownership threshold is always highly compensated no matter what the top-paid election says, because ownership alone triggers the status regardless of pay.
was in the top 20% of employees when ranked by compensation.
Publication 560 (2022), Retirement Plans for Small Business (IRS)
Key employees and the 60% top-heavy test
A retirement plan is top-heavy when the balance of benefits and account balances held by key employees outweighs the rest of the plan. Specifically, a plan is top-heavy for a given plan year if, looking at the preceding plan year, the total value of accrued benefits or account balances attributable to key employees exceeds 60% of the total value for all employees. Key employees include officers, owners, and highly compensated individuals meeting a $200,000 compensation threshold for the 2022 year. When a plan is top-heavy, additional qualification requirements apply, primarily to provide minimum benefits or contributions for non-key employees. Most qualified plans must contain provisions that meet these top-heavy requirements and those provisions take effect automatically in any plan year the plan is top-heavy. The top-heavy determination is therefore a recurring annual obligation, and failing to apply the required minimum contributions when the plan is top-heavy can jeopardize the plan's qualified status.
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 em- ployees.
Publication 560 (2022), Retirement Plans for Small Business (IRS)
A safe harbor plan skips the test entirely
A safe harbor 401(k) plan is largely exempt from the annual nondiscrimination testing that most 401(k) plans must undergo. If a plan meets the safe harbor requirements - principally, making specified matching or nonelective contributions on behalf of eligible employees - it is not required to satisfy the ADP or ACP test, and it also avoids the top-heavy plan requirements that would otherwise apply when key employees hold a disproportionate share of plan assets. This means the plan is not at risk of failing the top-heavy test even if key employees hold a very large share of plan balances. The top-heavy exemption extends to safe harbor 401(k) plans that consist solely of safe harbor contributions, as well as to SIMPLE 401(k) plans and QACAs. Plan sponsors who want to eliminate testing risk for both highly compensated and non-highly compensated employees therefore often choose the safe harbor structure, accepting the mandatory contribution obligation in exchange for skipping the ADP, ACP, and top-heavy tests altogether.
safe har- bor 401(k) plans that consist solely of safe harbor contri- butions
Publication 560 (2022), 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 2021-61 (IRS)
- Highly compensated employee threshold
The limitation used in the definition of “highly compensated employee” under section 414(q)(1)(B) is increased from $130,000 to $135,000.
- Key employee threshold
The dollar limitation under section 416(i)(1)(A)(i) concerning the definition of “key employee” in a top-heavy plan is increased from $185,000 to $200,000.