2026 Highly Compensated Employee Threshold
For 2026, the Highly Compensated Employee Threshold is $160,000 (Highly compensated employee threshold) and $235,000 (Key employee threshold).
Effective 2026-01-01Source: Notice 2025-67 (IRS)Verified 2026-08-29
Compared with 2025
| Item | 2025 | 2026 | Change |
|---|---|---|---|
| Highly compensated employee threshold | $160,000 | $160,000 | +$0 (+0.0%) |
| Key employee threshold | $230,000 | $235,000 | +$5,000 (+2.2%) |
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 for the 2026 plan year. 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 $235,000 key employee threshold under section 416(i) is a separate classification used for top-heavy plan purposes.
What changed this year, and why
Notice 2025-67 states that the threshold used in the definition of highly compensated employee under section 414(q) remains $160,000 for 2026, the same amount published for 2025. The threshold under section 416(i) concerning the definition of key employee for top-heavy plan purposes increases from $230,000 to $235,000. The notice adjusts both at the same time and in the same manner as the limitation of section 415(b), after applying rounding rules.
Common questions
- What is the highly compensated employee threshold for 2026?
- Notice 2025-67 states the threshold used in the definition of highly compensated employee under section 414(q) as $160,000 for 2026. 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. The figure is adjusted alongside the limitation of section 415(b), after rounding.
- Did the highly compensated employee threshold change from 2025?
- No. Notice 2025-67 states the section 414(q) threshold as remaining $160,000, which is also the amount published for 2025. The notice writes remains for figures that did not move and increased from for figures that did, and this threshold is written the first way. Anyone applying the 2025 figure will therefore be applying the same amount for 2026.
- Why did the threshold stay flat when other retirement limits rose?
- Notice 2025-67 applies the cost-of-living adjustment described in section 415(d) and then applies rounding rules before publishing each figure, so a movement smaller than a rounding step leaves the published amount unchanged. That is why the section 414(q) threshold remains $160,000 while other items in the same notice moved, including the key employee threshold, which increased from $230,000 to $235,000.
- What is the key employee threshold for 2026?
- It is $235,000. Notice 2025-67 states it as the threshold under section 416(i) concerning the definition of key employee for top-heavy plan purposes, increased from $230,000. It is a different test from the threshold used in the definition of highly compensated employee under section 414(q), which the same notice states as $160,000 for 2026.
- What is the difference between a highly compensated employee and a key employee?
- Notice 2025-67 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 $235,000 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. The two thresholds also moved differently for 2026.
- Does the threshold limit how much a highly compensated employee can contribute?
- Notice 2025-67 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 sit 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).
- Is the highly compensated employee threshold the same as the annual compensation limit?
- No. Notice 2025-67 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 2026. 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 in the same notice, which is why they are often mixed up.
- Where does the highly compensated employee threshold come from?
- Notice 2025-67, 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 the first prong of the highly compensated employee definition, an individual is classified as a highly compensated employee if they owned more than 5% of the interest in the business at any time during the year or the preceding year. This ownership test applies regardless of how much compensation that person earned or received. In other words, even if a 5% owner's pay for the year falls well below the $160,000 compensation threshold used for 2026, they are still treated as a highly compensated employee solely because of their ownership stake. The test looks only at whether the ownership level was exceeded at any point during the relevant period - not at salary, bonuses, or other forms of pay. Employers must count such owners when determining which employees are subject to the stricter nondiscrimination limits that apply to highly compensated employees in retirement plans.
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 the second prong of the highly compensated employee definition, an employee may be classified as highly compensated based on compensation alone. For 2026, the compensation threshold is $160,000. However, the employer has the option to narrow this prong by also requiring that the employee be in the top 20% of all employees when ranked by compensation. This is known as the top-paid group election. If the employer chooses to apply it, an employee who earned more than $160,000 in the preceding year is not treated as a highly compensated employee unless that employee also falls within the top 20% of the workforce by pay. Without this election, every employee who exceeded the dollar threshold in the preceding year is automatically classified as highly compensated. The election gives the employer a tool to limit the size of the highly compensated employee group, which can make nondiscrimination testing easier to pass.
For the preceding year, received compensation from you of more than $155,000 (if the preceding year is 2024, and increased to $160,000 for 2025 and 2026), 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 plan is classified as 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. This 60% threshold is the key test that determines whether a plan has top-heavy status. Key employees include certain highly compensated individuals, including those earning above $235,000. When a plan is determined to be top-heavy, additional requirements apply, primarily to provide minimum benefits or contributions for non-key employees covered by the plan. The purpose of these rules is to ensure that retirement plans do not disproportionately favor owners and highly compensated workers at the expense of rank-and-file employees. Most qualified plans must include provisions that meet the top-heavy requirements, which take effect automatically in any plan year where the test is met.
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
When an employer establishes a safe harbor 401(k) plan that meets all of the IRS requirements, the plan is exempt from the annual ADP and ACP nondiscrimination tests that other 401(k) plans must satisfy. Instead of performing these tests each year, the employer makes either matching or nonelective contributions according to formulas prescribed by the IRS. Because the safe harbor design builds in protections for non-highly compensated employees through these required contributions, the plan automatically passes the nondiscrimination requirements that would otherwise apply. This means that highly compensated employees can contribute the maximum elective deferral amounts without concern that the plan will fail testing and require corrective distributions. Safe harbor plans must also satisfy other general 401(k) requirements, including vesting rules and notice requirements to participants. While the safe harbor approach eliminates the need for annual testing, the employer must commit to making the required contributions each 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 2025-67 (IRS)
- Highly compensated employee threshold
The threshold used in the definition of “highly compensated employee” under section 414(q)(1)(B) remains $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 $230,000 to $235,000.