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Ray
Ray, Employment lawyer
Category: Employment Law
Satisfied Customers: 41553
Experience:  30 years in Employment law
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How is highly compensated employee compensation calculated

Customer Question

how is highly compensated employee compensation calculated for the purpose of contributing to 401k etc? Can the threshold be less or more than 120k (I am not 5% owner) depending on the salary of other employees at the company - -or it is always 120k? Secondly, what is excluded from this compensation (would my medical insurance payroll deduction be deducted, would my 401k be deducted, would my HSA or FSA contribution be deducted, etc)? Please provide links to support your answer.
Submitted: 7 months ago.
Category: Employment Law
Expert:  Ray replied 7 months ago.

Hi and welcome to JA. Ray here to help you today.Please bear with me a few moments while I review your question, conduct and prepare your response.

Expert:  Ray replied 7 months ago.

The IRS limits the amount of money that an employee and an employer can contribute to an employer-sponsored retirement account like a 401(k). Unlike contribution elections, which are generally discussed in terms of percentage-of-salary, the limitations are strict numbers that apply to everyone, regardless of income level. Thus, if an employee makes $500,000 and wants to contribute a small percentage of his/her income, like 5%, he/she will be restricted by the contribution limits the IRS has set for the plan-type. Since 5% of $500,000 is $25,000, the employee will likely need to reduce his/her elected contribution percentage.

Plan
2016

Maximum yearly employee contribution 401(k), 403(b),
457 or Government TSP (under age 50)
$18,000

Maximum yearly employee contribution 401(k), 403(b),
457 or Government TSP (over age 50)
$24,000

Maximum total contribution 401(k), 403(b)
(cannot exceed 100% of employee salary)

$53,000

So for 2016 the employee cap is $24,000 and the total contribution from employer and employee is $53,000.

I appreciate the chance to help you tonight.Thanks again.

If you can positive rate 5 stars it is much appreciated.

Reference

Customer: replied 7 months ago.
Ray,
This is not my question. Can you please re-read what I am asking. If you do not know the answer please opt out.
Customer: replied 7 months ago.
you can also try to read this - -I could not quite figure out -- what would be excluded from compensation for highly compensated employees. https://www.irs.gov/pub/irs-tege/2013cpe_compensation.pdf
Expert:  Ray replied 7 months ago.

I will. opt out here, no need to reply, thanks.