2025 Highly Compensated Employee Threshold
For 2025, the Highly Compensated Employee Threshold is $160,000 (Highly compensated employee threshold) and $230,000 (Key employee threshold).
Effective 2025-01-01Source: Notice 2024-80 (IRS)Verified 2026-09-01
Compared with 2024
| Item | 2024 | 2025 | Change |
|---|---|---|---|
| Highly compensated employee threshold | $155,000 | $160,000 | +$5,000 (+3.2%) |
| Key employee threshold | $220,000 | $230,000 | +$10,000 (+4.5%) |
Who it applies to
Employers that sponsor qualified retirement plans and the employees those plans classify, along with the administrators who run the annual tests. The notice publishes the compensation figure used inside the section 414(q) definition; it does not restate the rest of that definition, which stays in the Code. The key employee threshold under section 416(i) is a separate classification used for top-heavy plan purposes.
What changed this year, and why
Notice 2024-80 increases the threshold used in the definition of highly compensated employee under section 414(q) to $160,000 for 2025. The threshold under section 416(i) concerning the definition of key employee for top-heavy plan purposes increases to $230,000. The notice adjusts both at the same time and in the same manner as the limitation of section 415(b), after applying the rounding rules it describes.
Common questions
- What is the highly compensated employee threshold for 2025?
- Notice 2024-80 states the threshold used in the definition of highly compensated employee under section 414(q) as $160,000 for 2025. That is the compensation figure the definition turns on. The notice publishes the amount only; the rest of the definition stays in section 414(q) itself and is not restated in the notice. The figure is adjusted alongside the limitation of section 415(b).
- Did the highly compensated employee threshold go up for 2025?
- Yes. Notice 2024-80 states the section 414(q) threshold as increased for 2025 and gives the new amount as $160,000. The notice distinguishes throughout between figures it increased and figures it states as remaining unchanged, and this one is in the increased group. It sits in the same list as the key employee threshold and the annual compensation limitation under section 401(a), which the notice also raised.
- What is the key employee threshold for 2025?
- It is $230,000. Notice 2024-80 states it as the threshold under section 416(i) concerning the definition of key employee for top-heavy plan purposes, increased for 2025. It is a different test from the threshold in the definition of highly compensated employee under section 414(q), which the same notice sets at $160,000. The notice publishes them as two separate items.
- What is the difference between a highly compensated employee and a key employee?
- Notice 2024-80 attaches them to different Code sections and different purposes. The $160,000 threshold under section 414(q) is the compensation figure inside the definition of highly compensated employee. The $230,000 threshold under section 416(i) is the compensation figure inside the definition of key employee, and the notice states that one is for top-heavy plan purposes. Both are published for 2025 in the same notice.
- Is the highly compensated employee threshold the same as the annual compensation limit?
- No. Notice 2024-80 lists them as separate items under separate Code sections. The threshold used in the definition of highly compensated employee under section 414(q) is $160,000 for 2025. The annual compensation limitation under section 401(a) is a different and larger amount that the notice increases in a sentence of its own. Both are compensation figures published in the same notice, which is why they are easy to confuse.
- Does the threshold limit how much a highly compensated employee can contribute?
- Notice 2024-80 does not say that. It states $160,000 as the threshold used in the definition of highly compensated employee under section 414(q), which is a classification figure rather than a contribution cap. Contribution limitations appear elsewhere in the same notice under their own Code sections, including the limitation under section 402(g) on the exclusion for elective deferrals and the catch-up limitation under section 414(v).
- When does the 2025 threshold apply?
- Notice 2024-80 publishes the cost-of-living adjusted limitations for 2025 and states the amounts adjusted alongside the section 415(b) limitation as the amounts for 2025. The notice gives an explicit effective date of January 1, 2025 for the defined benefit limitation under section 415(b). For the other items, including the section 414(q) threshold, it states them as the 2025 amounts without repeating that date.
- Where does the highly compensated employee threshold come from?
- Notice 2024-80, the annual IRS notice of amounts relating to retirement plans and IRAs as adjusted for changes in cost-of-living. Section 415 of the Internal Revenue Code provides for limitations on benefits and contributions under qualified retirement plans, and section 415(d) requires the Secretary of the Treasury to adjust them annually for cost-of-living increases using procedures similar to those used for Social Security benefit amounts. The section 414(q) threshold is adjusted in the same cycle.
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 IRS rules, you are classified as a highly compensated employee for a year if you owned more than 5% of the interest in the business sponsoring the plan at any time during that year or the preceding year. This ownership test applies regardless of how much compensation you actually earned or received from the employer. Even if your pay was well below the dollar threshold that would otherwise trigger highly compensated status, the 5% ownership alone is enough to place you in that category. For 2025, the compensation-based threshold for highly compensated employees is $160,000, but that figure is irrelevant to the 5% owner test. The rule looks at ownership in the business during the current year or the prior year, so a former owner who held more than 5% in the preceding year can still be treated as highly compensated even after selling their stake. This matters because highly compensated employees are subject to stricter nondiscrimination testing on retirement plan contributions and benefits, and plans that fail those tests may have to return excess contributions to these employees.
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 (2025), Retirement Plans for Small Business (IRS)
The top 20% election an employer may make
Under federal IRS rules for 2025, an employer may narrow the definition of highly compensated employee by making the top-paid-group election. Instead of treating everyone who earned above $160,000 in the preceding year as highly compensated, the employer can require that such an employee must also have been in the top 20% of all employees when ranked by compensation. This election filters out higher-paid workers who fall outside the highest-earning fifth of the workforce, even though their pay exceeded the dollar threshold. Without it, any employee above the limit automatically qualifies regardless of rank. Employers use this election to reduce the number of employees classified as highly compensated for nondiscrimination testing of retirement plans. The election looks at the preceding year's payroll records and ranks all employees from highest to lowest pay to identify which workers fall within the top fifth.
and, if you so choose, was in the top 20% of employ- ees when ranked by compensation.
Publication 560 (2025), Retirement Plans for Small Business (IRS)
Key employees and the 60% top-heavy test
A retirement plan is considered top-heavy for a given plan year if, looking at the preceding plan year, the total value of accrued benefits or account balances attributed to key employees exceeds 60% of the total value of accrued benefits or account balances for all employees in the plan. Key employees include certain owners and highly paid individuals, and the verified key employee compensation threshold for 2025 is $230,000. When a plan is top-heavy, additional requirements kick in, primarily to provide minimum benefits or contributions for non-key employees covered by the plan. Most qualified plans must contain provisions that meet these top-heavy requirements, which will take effect automatically in any plan year where the plan is determined to be top-heavy. The qualification requirements for top-heavy plans are explained in section 416 and its regulations. Employers must monitor the composition of their plan's account balances each year to determine whether the 60% threshold is crossed and whether minimum contribution or benefit rules apply to non-key employees.
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 (2025), Retirement Plans for Small Business (IRS)
A safe harbor plan skips the test entirely
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. These nondiscrimination tests normally compare elective deferral and matching contribution rates between highly compensated employees and non-highly compensated employees, and failing them can result in plan disqualification if not corrected. A safe harbor plan avoids this testing burden entirely by requiring the employer to make either specified matching contributions or nonelective contributions to all eligible non-highly compensated employees, following one of the IRS-approved formulas. In exchange for making these mandatory contributions and providing an annual notice to eligible employees, the plan is deemed to satisfy the ADP and ACP tests automatically. The safe harbor design gives employers certainty that their plan will pass nondiscrimination requirements without having to monitor actual deferral patterns or potentially refund excess contributions to highly compensated employees at the end of the plan year.
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 (2025), 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 2024-80 (IRS)
- Highly compensated employee threshold
The threshold used in the definition of “highly compensated employee” under section 414(q)(1)(B) is increased from $155,000 to $160,000.
- Key employee threshold
The threshold under section 416(i)(1)(A)(i) concerning the definition of “key employee” for top-heavy plan purposes is increased from $220,000 to $230,000.