2024 Highly Compensated Employee Threshold
For 2024, the Highly Compensated Employee Threshold figures are $155,000 (Highly compensated employee threshold) and $220,000 (Key employee threshold).
Effective 2024-01-01Source: Notice 2023-75 (IRS)Verified 2026-09-03
Compared with 2023
| Item | 2023 | 2024 | Change |
|---|---|---|---|
| Highly compensated employee threshold | $150,000 | $155,000 | +$5,000 (+3.3%) |
| Key employee threshold | $215,000 | $220,000 | +$5,000 (+2.3%) |
Who it applies to
Employers sponsoring qualified retirement plans and employees whose compensation may place them in the highly compensated employee or key employee categories.
What changed this year, and why
For 2024, the IRS raised the highly compensated employee (HCE) threshold to $155,000, effective January 1, 2024. This amount is set under Internal Revenue Code section 414(q)(1)(B) and is adjusted annually for cost-of-living increases. An employee who earned more than $155,000 in the prior year (2023) is classified as a highly compensated employee for 2024 purposes. The key employee threshold in top-heavy plans also increased for 2024, to $220,000, under section 416(i)(1)(A)(i).
Common questions
- What is the highly compensated employee threshold for 2024?
- The threshold is $155,000, effective January 1, 2024, as set under IRC section 414(q)(1)(B) in IRS Notice 2023-75.
- How does the HCE threshold affect retirement plans?
- Employers use the HCE definition to perform nondiscrimination testing for qualified retirement plans. Employees who earned above the threshold in the prior year are treated as highly compensated employees for the current plan year.
- What is the key employee threshold for 2024?
- The key employee threshold for top-heavy plans is $220,000 for 2024.
Every amount on this page is a published figure rather than yours. The Highly compensated employee check takes the number you enter and works it out against them, showing which published figure it used.
The 5% owner test ignores what you are paid
Under the first prong of the highly compensated employee definition, an individual is treated as a highly compensated employee if they owned more than 5% of the interest in the employer's business at any point during the current year or the preceding year. The critical feature of this test is that it operates independently of pay. Even if the owner's compensation is zero, or far below the $155,000 compensation threshold that applies to the second prong, the 5% ownership stake alone is enough to trigger highly compensated employee status. The look-back to the preceding year means that a sale or reduction of ownership during the current year does not necessarily remove the classification. This rule prevents business owners from avoiding highly compensated employee treatment simply by paying themselves a modest salary while retaining a controlling ownership interest. Because the test is purely ownership-based, employers must track ownership percentages carefully for each plan year to identify every employee who meets this threshold.
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 (2024), Retirement Plans for Small Business (IRS)
The top 20% election an employer may make
An employer may elect to treat employees in the top 20% of the workforce when ranked by compensation as highly compensated employees. This is an optional add-on to the compensation-based prong of the highly compensated employee definition. When the employer makes this election, employees who fall within the highest-paid 20% of all employees are classified as highly compensated regardless of whether their individual compensation exceeds the $155,000 threshold. The purpose of this election is to ensure that the highly compensated employee group captures a broader cross-section of the workforce for nondiscrimination testing purposes. Without this election, only those employees who earned more than $155,000 in the preceding year would qualify under the compensation prong. Employers should consider this election carefully, as expanding the definition of highly compensated employees can affect the outcome of coverage and nondiscrimination tests.
and, if you so choose, was in the top 20% of employees when ranked by compensation
Publication 560 (2024), Retirement Plans for Small Business (IRS)
Key employees and the 60% top-heavy test
This 60% threshold is the triggering test for top-heavy status. Key employees include certain highly compensated individuals such as those earning more than $220,000. When a plan is determined to be top-heavy, additional minimum contribution or benefit requirements apply primarily to provide benefits for non-key employees covered by the plan. Most qualified plans must contain provisions that meet these top-heavy requirements and will activate those provisions in plan years where the plans are top-heavy. Employers must monitor the aggregate account balances and accrued benefits of key employees relative to all employees each plan year to determine whether the top-heavy test is met.
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 (2024), Retirement Plans for Small Business (IRS)
A safe harbor plan skips the test entirely
The ADP test (Actual Deferral Percentage) and ACP test (Actual Contribution Percentage) are the standard nondiscrimination tests that 401(k) plans must pass to ensure that highly compensated employees are not disproportionately benefiting from the plan. By electing safe harbor status and making the required matching or nonelective contributions, the plan is automatically deemed to satisfy these tests without performing the annual calculations. This provides certainty for plan sponsors and avoids the risk of test failures that could require corrective distributions or additional contributions. However, the plan must still meet the other requirements for a 401(k) plan, including withdrawal and vesting rules, to maintain its safe harbor qualification.
If you meet the requirements for a safe harbor 401(k) plan, you don't have to satisfy the ADP test or the ACP test if certain additional requirements are met
Publication 560 (2024), Retirement Plans for Small Business (IRS)
This year's HCE status is decided by last year's paycheck
Whether an employee counts as highly compensated this year is not decided by what they are paid this year - it is decided by what they were paid in the preceding year. Anyone whose compensation from you in the prior year was more than $155,000, this record's own threshold, is a highly compensated employee for this year if you also choose to apply the top-paid group test and they were in the top 20% of employees ranked by pay; without that election, the compensation test alone is enough. Because compensation-based status runs a year behind pay, a raise that pushes someone over the threshold this year does not make them highly compensated until next year - and an employee who clears the threshold every year keeps that status without a gap, since each year's test is decided before that year begins.
increased to $155,000 for 2024), more than $160,000 (if the preceding year is 2025), and, if you so choose, was in the top 20% of employees when ranked by compensation.
Publication 560 (2024), Retirement Plans for Small Business (IRS)
Contributing too much to highly compensated employees costs the employer an excise tax
When contributions made on behalf of your highly compensated employees fail the plan's nondiscrimination tests, the excess is an excess contribution, and the employer may owe a 10% excise tax on it. Two tests measure this: the actual deferral percentage test for elective deferrals, and the actual contribution percentage test for matching and after-tax employee contributions. Either one failing can trigger the tax if the excess is not corrected. The employer reports and pays the excise tax on Form 5330, separate from the plan's other annual filings. Both tests are excused for a safe harbor 401(k) plan or a QACA, and for other plan designs once certain additional conditions are met. Distributing the excess amounts to the affected highly compensated employees before the correction deadline avoids the tax; leaving the excess in the plan past that date is what triggers it.
contributions for highly compensated employees are more than the test limits for these contributions, the em- ployer may have to pay a 10% excise tax. Report the tax on Form 5330.
Publication 560 (2024), 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 2023-75 (IRS)
- Highly compensated employee threshold
The limitation used in the definition of “highly compensated employee” under section 414(q)(1)(B) is increased from $150,000 to $155,000.
- 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 $215,000 to $220,000.