Highly Compensated Employee: 2026 and 2027 Threshold, Key Employee and 415(c) Limit
A highly compensated employee (HCE) under 26 U.S.C. 414(q) is a 5-percent owner in the current or the preceding year, or someone who in the preceding year earned more than the IRS threshold ($160,000 for 2026) and, if the employer elects the top-paid group test, was also in the top 20 percent of employees by pay. For plan year 2027 (calendar-year plans), HCE status uses 2026 pay and the 2026 amount, $160,000. The IRS has not announced the 2027 amounts (it announced the 2026 amounts on November 13, 2025), so the 2027 column below is marked pending: the threshold computed at $170,000 (not official), the key employee amount not announced and the 415(c) limit computed at $75,000 (not official). This is general information, not tax advice; your plan administrator decides who is an HCE.
Maintained by Archie Chang · Reviewed November 9, 2026 · Methodology & sources
Status: the 2026 amounts are official. The IRS has not announced the 2027 amounts, so the 2027 column is pending; a computed figure is our computation, not an IRS number, and is replaced when the IRS notice is added to our data. Your plan administrator runs the tests and decides who is a highly compensated employee. This page is general information, not tax advice.
Highly compensated employee, key employee and 415(c) amounts
| Amount | 2026 | 2027 amount (2027 pay → plan year 2028) | 2027 status |
|---|---|---|---|
| Highly compensated employee: compensation above26 U.S.C. 414(q)(1)(B) | $160,000 | $170,000 | Computed, not official |
| Key employee: officer compensation above26 U.S.C. 416(i)(1)(A)(i) | $235,000 | Not announced | Not announced |
| Annual additions limit, defined contribution plan26 U.S.C. 415(c)(1)(A) | $72,000 | $75,000 | Computed, not official |
The 2027 column is not the amount for plan year 2027. For plan year 2027 in a calendar-year plan, HCE status uses 2026 pay and the 2026 amount, $160,000; the 2027 amount applies to 2027 pay and so to plan year 2028.
The 2026 amounts are from IRS Notice 2025-67, announced on November 13, 2025 in IR-2025-111. The 2027 amounts for the highly compensated employee threshold and the 415(c) limit are read from the same data as our 401(k) contribution limits 2027 page, where the computation method is shown. It reproduces the official amounts for 2018 to 2026, and it is still not an IRS announcement.
“The threshold used in the definition of “highly compensated employee” under section 414(q)(1)(B) remains $160,000.”
“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.”
“The limitation for defined contribution plans under section 415(c)(1)(A) is increased in 2026 from $70,000 to $72,000.”
Who is a highly compensated employee (26 U.S.C. 414(q))
The definition has two paths: ownership, or pay in the preceding year.
“The term "highly compensated employee" means any employee who— (A) was a 5-percent owner at any time during the year or the preceding year, or (B) for the preceding year— (i) had compensation from the employer in excess of $80,000, and (ii) if the employer elects the application of this clause for such preceding year, was in the top-paid group of employees for such preceding year.”
The statute then defines each piece. A 5-percent owner is defined by section 416(i)(1), the top-paid group is the top 20 percent by pay, and compensation means section 415(c)(3) compensation:
“An employee shall be treated as a 5-percent owner for any year if at any time during such year such employee was a 5-percent owner (as defined in section 416(i)(1)) of the employer.”
“An employee is in the top-paid group of employees for any year if such employee is in the group consisting of the top 20 percent of the employees when ranked on the basis of compensation paid during such year.”
“For purposes of this subsection, the term "compensation" has the meaning given such term by section 415(c)(3).”
Some employees are excluded when the number of employees in the top-paid group is determined:
“For purposes of subsection (r) and for purposes of determining the number of employees in the top-paid group, the following employees shall be excluded— (A) employees who have not completed 6 months of service, (B) employees who normally work less than 17½ hours per week, (C) employees who normally work during not more than 6 months during any year, (D) employees who have not attained age 21, and”
A former employee can stay highly compensated:
“A former employee shall be treated as a highly compensated employee if— (A) such employee was a highly compensated employee when such employee separated from service, or (B) such employee was a highly compensated employee at any time after attaining age 55.”
The IRS Definitions page puts the same test in plain words:
“Highly compensated employee – An individual who: […] Owned more than 5% of the interest in the business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or […] For the preceding year, received compensation from the business of more than $125,000 (if the preceding year is 2019, $130,000 if the preceding year is 2020 or 2021, $135,000 if the preceding year is 2022, $150,000(if the preceding year is 2023 and $155,000 is 2024 if the preceding year is 2024 and, if the employer so chooses, was in the top 20% of employees when ranked by compensation.”
The look-back year: which year’s pay and which amount
The compensation test looks at the preceding year, not the year you are testing. The amount the IRS Definitions page lists for a preceding year is the amount the IRS announced for that year: $155,000 for the preceding year 2024 is the 2024 amount (Notice 2023-75), and $150,000 for the preceding year 2023 is the 2023 amount (Notice 2022-55). The Definitions page entry is quoted above. For a calendar-year plan the preceding year is the previous calendar year, so the 2026 amount of $160,000 applies to pay earned in 2026, which decides who is highly compensated for plan year 2027, and the 2027 amount applies to pay earned in 2027 and so to plan year 2028. A plan with a different plan year can have a different look-back year; ask your plan administrator.
The ownership path is different: a 5-percent owner in the current year or the preceding year is highly compensated whatever the pay. The dollar amount is indexed:
“The Secretary shall adjust the $80,000 amount under subparagraph (B) at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter ending September 30, 1996.”
“Section 415(d) requires that the Secretary of the Treasury annually adjust these limitations for cost-of-living increases.”
An amount of exactly the threshold is not “in excess of” it, so pay has to be above the amount.
Highly compensated employee threshold by year
| Year | 414(q) threshold | 415(c) limit | IRS notice |
|---|---|---|---|
| 2026 | $160,000 | $72,000 | Notice 2025-67 |
| 2025 | $160,000 | $70,000 | Notice 2024-80 |
| 2024 | $155,000 | $69,000 | Notice 2023-75 |
| 2023 | $150,000 | $66,000 | Notice 2022-55 |
| 2022 | $135,000 | $61,000 | Notice 2021-61 |
| 2021 | $130,000 | $58,000 | Notice 2020-79 |
| 2020 | $130,000 | $57,000 | Notice 2019-59 |
| 2019 | $125,000 | $56,000 | Notice 2018-83 |
| 2018 | $120,000 | $55,000 | Notice 2017-64 |
Amounts as printed in each year’s IRS notice “Amounts Relating to Retirement Plans and IRAs”, from the same data as the 401(k) limits pages.
2027: what the IRS has and has not announced
The IRS has not published its 2027 notice. The 2026 notice came out on November 13, 2025, so the 2027 notice is expected in mid-November 2026, with the 401(k) and IRA limits. Until then the table shows the 2027 threshold as $170,000 and the 415(c) limit as $75,000, both computed by us and marked not official, and the key employee amount as not announced, because the site has no method for it.
Section 414(q)(1) adjusts the threshold “in the same manner as under section 415(d)”, and section 415(d)(4)(A) rounds that kind of increase down to a multiple of $5,000, so the threshold can stay the same for a year. The 415(c) increase is rounded down to a multiple of $1,000. The 2026 notice shows both: the highly compensated employee amount remains $160,000 while the 415(c) limit rose.
“Any increase under subparagraph (A) of paragraph (1) which is not a multiple of $5,000 shall be rounded to the next lowest multiple of $5,000. This subparagraph shall also apply for purposes of any provision of this title that provides for adjustments in accordance with the method contained in this subsection, except to the extent provided in such provision.”
“The Secretary shall adjust annually— […] (C) the $40,000 amount in subsection (c)(1)(A), […] for increases in the cost-of-living in accordance with regulations prescribed by the Secretary.”
“Any increase under subparagraph (C) of paragraph (1) which is not a multiple of $1,000 shall be rounded to the next lowest multiple of $1,000.”
Key employee (26 U.S.C. 416(i))
A key employee is a different test, used for top-heavy plans. The statute names officers above a pay amount, 5-percent owners and 1-percent owners above a pay amount:
“The term "key employee" means an employee who, at any time during the plan year, is— (i) an officer of the employer having an annual compensation greater than $130,000, (ii) a 5-percent owner of the employer, or (iii) a 1-percent owner of the employer having an annual compensation from the employer of more than $150,000.”
Only the officer amount is indexed, in $5,000 steps. For 2026 it is $235,000, and the 1-percent owner amount stays at the statute’s figure:
“For purposes of clause (i), no more than 50 employees (or, if lesser, the greater of 3 or 10 percent of the employees) shall be treated as officers. In the case of plan years beginning after December 31, 2002, the $130,000 amount in clause (i) shall be adjusted at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2001, and any increase under this sentence which is not a multiple of $5,000 shall be rounded to the next lower multiple of $5,000.”
“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.”
The 5-percent owner has the ownership meaning of section 416(i)(1)(B), which section 414(q)(2) also uses for highly compensated employees:
“For purposes of this paragraph, the term "5-percent owner" means— (I) if the employer is a corporation, any person who owns (or is considered as owning within the meaning of section 318) more than 5 percent of the outstanding stock of the corporation or stock possessing more than 5 percent of the total combined voting power of all stock of the corporation, or (II) if the employer is not a corporation, any person who owns more than 5 percent of the capital or profits interest in the employer.”
The 415(c) annual additions limit
The 415(c) limit caps the total added to one participant’s account in a defined contribution plan in a year. It is the lesser of a dollar amount and 100 percent of compensation, and the dollar amount is $72,000 for 2026 (2027: $75,000, computed, not official).
“Contributions and other additions with respect to a participant exceed the limitation of this subsection if, when expressed as an annual addition (within the meaning of paragraph (2)) to the participant's account, such annual addition is greater than the lesser of— (A) $40,000, or (B) 100 percent of the participant's compensation.”
“For purposes of paragraph (1), the term "annual addition" means the sum of any year of— (A) employer contributions, (B) the employee contributions, and (C) forfeitures.”
“Annual additions are the total of all employer contributions, employee contributions (not including rollovers), and forfeitures allocated to a participant's account in a year.”
Employer contributions, employee contributions and forfeitures all count toward it; for plans that allow after-tax contributions, see mega backdoor Roth, the 401(k) contribution limits and the SEP IRA limits.
Why highly compensated status matters
The IRS Definitions page names the best-known test:
“ADP or actual deferral percentage is an annual test in a 401(k) plan that compares the average salary deferrals of highly compensated employees to that of nonhighly compensated employees.”
The test and the owner rules are the plan’s to run; your administrator reports the result. Health FSA plans also have rules for highly compensated employees and key employees, which the limited purpose FSA page quotes from Publication 969. Catch-up contributions are on the catch-up contributions page.
Highly compensated employee questions
What is the highly compensated employee threshold for 2026?
$160,000. IRS Notice 2025-67 says: “The threshold used in the definition of “highly compensated employee” under section 414(q)(1)(B) remains $160,000.” The statute sets a base of $80,000 for the compensation test and requires the IRS to adjust it with the section 415(d) method (26 U.S.C. 414(q)(1)).
What is the highly compensated employee threshold for 2027?
For plan year 2027 (calendar-year plans), HCE status uses 2026 pay and the 2026 amount, $160,000. The 2027 amount applies to 2027 pay and so to plan year 2028; it is not announced by the IRS; our computation from the statute and inflation data is $170,000, which is not official. The IRS announced the 2026 amounts on November 13, 2025, in IR-2025-111 and Notice 2025-67. The look-back question below explains which compensation year each amount tests.
Who is a highly compensated employee?
Section 414(q)(1) says: “The term "highly compensated employee" means any employee who— (A) was a 5-percent owner at any time during the year or the preceding year, or (B) for the preceding year— (i) had compensation from the employer in excess of $80,000, and (ii) if the employer elects the application of this clause for such preceding year, was in the top-paid group of employees for such preceding year.” A 5-percent owner is defined by section 416(i)(1). The top-paid group is “the top 20 percent of the employees when ranked on the basis of compensation paid during such year”, and compensation has the meaning of section 415(c)(3). The employer elects whether the top-paid group test applies, so ask your plan administrator which test your plan uses.
What is the look-back year for highly compensated employees?
The compensation test looks at the preceding year: the statute says “for the preceding year” the employee “had compensation from the employer in excess of” the threshold. The amount the IRS Definitions page lists for a preceding year is the amount the IRS announced for that year: $155,000 for the preceding year 2024 is the 2024 amount (Notice 2023-75), and $150,000 for the preceding year 2023 is the 2023 amount (Notice 2022-55). For a calendar-year plan the preceding year is the previous calendar year, so the 2026 amount ($160,000) applies to 2026 pay, which decides who is an HCE for plan year 2027, and the 2027 amount applies to 2027 pay and so to plan year 2028. A plan with a different plan year can have a different look-back year, and the 5-percent owner test looks at the current and the preceding year. Your plan administrator makes the final call.
Who is a key employee?
Section 416(i)(1)(A) says a key employee is an officer with annual compensation greater than $130,000 (the amount adjusted for inflation; it is $235,000 for 2026 under Notice 2025-67), a 5-percent owner, or a 1-percent owner with annual compensation of more than $150,000. No more than 50 employees (or, if lesser, the greater of 3 or 10 percent of the employees) are treated as officers. The 2027 key employee amount is not announced by the IRS, and we have no method to compute it.
What is the 415(c) limit for 2026 and 2027?
$72,000 for 2026 (Notice 2025-67: “The limitation for defined contribution plans under section 415(c)(1)(A) is increased in 2026 from $70,000 to $72,000.”). Under section 415(c)(1) the annual addition cannot exceed the lesser of that dollar amount or 100 percent of the participant's compensation. For 2027 the amount is not announced by the IRS; our computation from the statute and inflation data is $75,000, which is not official.
Does a former employee stay highly compensated?
Section 414(q)(6) treats a former employee as a highly compensated employee if the person was one when separating from service, or at any time after attaining age 55.
Why does HCE status matter?
The IRS Definitions page gives one example: “ADP or actual deferral percentage is an annual test in a 401(k) plan that compares the average salary deferrals of highly compensated employees to that of nonhighly compensated employees.” The IRS also flags limits for highly compensated employees in health FSA plans; the limited purpose FSA page quotes what Publication 969 says.
Cite this page
Page title: Highly Compensated Employee 2026 and 2027: $160,000 Test. Updated November 9, 2026. Canonical URL: https://fedratecalc.com/highly-compensated-employee-2027/
Data source: 26 U.S.C. 414 (govinfo); 26 U.S.C. 415 (govinfo); 26 U.S.C. 416 (govinfo); IRS Notice 2025-67; IRS news release IR-2025-111; IRS retirement plans: Definitions, compiled by FedRateCalc.
Plain-text citation
FedRateCalc. Highly Compensated Employee 2026 and 2027: $160,000 Test. Updated November 9, 2026. https://fedratecalc.com/highly-compensated-employee-2027/HTML link
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Sources (checked November 9, 2026): 26 U.S.C. 414 (govinfo) · 26 U.S.C. 415 (govinfo) · 26 U.S.C. 416 (govinfo) · IRS Notice 2025-67 · IRS news release IR-2025-111 · IRS retirement plans: Definitions