In October, the Internal Revenue Service (IRS) announced changes to various retirement plan benefits and employment tax limits for 2023. Not all limitations set forth by the IRS will be changed, as they are not subject to annual adjustments. However, those that will change are all tied to a cost of living index adjustment.
Changes in retirement plan limits start with changes to employee 401(k) contributions. These contributions will now be limited to $22,500 in 2023 from 2022’s $20,500 cap. In addition, all plan participants who are 50 years of age or older in 2023 can contribute an additional $7,500, $1,000 more than in 2022.
IRAs also have changes for 2023; the SIMPLE IRA plan raised its elective deferral limit by $1,500 to $15,500. The catch-up contribution limit has also increased by $500 and now tops off at $3,500. Regular IRAs have seen changes to their contribution limit going up to $6,500, with the catch-up contribution remaining the same at $1,000.
| Defined Contribution Plans | 2023 | 2022 | Change |
|
Maximum employee elective deferral (age 49 or younger) 1 |
$22,500 |
$20,500 |
+$2,000 |
|
Employee catch-up contribution (age 50 or older by year-end) 2 |
$7,500 |
$6,500 |
+$1,000 |
|
Maximum employee elective deferral plus catch-up contribution (age 50 or older) |
$30,000 |
$27,000 |
+$3,000 |
|
Defined contribution maximum limit, employee + employer (age 49 or younger) 3 |
$66,000 |
$61,000 |
+$5,000 |
|
Defined contribution maximum limit (age 50 or older), all sources + catch-up |
$73,500 |
$67,500 |
+$6,000 |
|
Employee compensation limit for calculating contributions |
$330,000 |
$305,000 |
+$25,000 |
|
Key employees' compensation threshold for top-heavy plan testing 4 |
$215,000 |
$200,000 |
+$15,000
|
|
Highly compensated employees’ threshold for nondiscrimination testing 5 |
$150,000 |
$135,000 |
+$15,000 |
1 The $22,500 elective deferral limit is also known as the 402(g) limit, after the relevant tax code section. Participants' annual contributions may not exceed 100% of their compensation.
2 The $7,500 catch-up contribution limit for participants age 50 or older applies from the start of the year for those turning 50 at any time during the year.
3 Total contributions from all sources may not exceed 100% of a participant's compensation.
4 Includes officers of the company sponsoring the plan.
5 For the 2023 plan year, an employee who earned more than $150,000 in 2022 is an HCE.
Source: IRS Notice 2022-55.
The rising inflation rate has also meant significant increases to contribution plans such as Health Savings Accounts.
HSA contributions for self-only coverage are up $200 and top out at $3,850, while family coverage is changing from $7,300 to $7,750. This is roughly a 5.5% increase from 2022-2023, up from the 1.4% increase seen from 2021-2022.
For High Deductible HealthPlans (HDHPs), minimum deductibles and maximum out-of-pocket numbers skyrocketed. Minimum deductibles now sit at $1,500 for self-only coverage (a change of $100) and $3,000 for family coverage ($200 more than in 2022). Out-of-pocket maximums have landed at $7,500 for self-only, a $450 increase from 2022, while family coverage is set at $15,000, up $900.
Finally, Flexible Spending Accounts (FSAs) saw a $200 increase in maximum salary deferral to top out at $3,050, while the maximum rollover amount is up just $40 to $610.
Dependent Care FSAs saw no change and stayed at 2022’s maximum salary deferral for single taxpayers and married couples filing jointly or separately. The maximum remains at $5,000 and $2,500, respectively.
| Health Savings Accounts (HSAs) and High-Deductible Health Plans (HDHPs) | 2023 | 2022 | Change |
|
HSA contribution limit |
Self-only: $3,850 Family: $7,750 |
Self-only: $3,650 Family: $7,300 |
Self-only: +$200 Family: +$450 |
|
HSA catch-up contributions |
$1,000 |
$1,000 |
no change |
|
HDHP minimum deductibles |
Self-only: $1,500 Family: $3,000 |
Self-only: 1,400 Family: $2,800 |
Self-only: +100 Family: +200 |
|
HDHP maximum out-of-pocket amounts (deductibles, co-payments and other amounts, but not premiums) |
Self-only: $7,500 Family: $15,000 |
Self-only: $7,050 Family: $14,100 |
Self-only: +450 Family: +$900 |
Source: IRS Revenue Procedure 2022-24.
|
Health Care Flexible Spending Accounts (Health FSAs) and Limited-Scope (Vision/Dental) FSAs |
2023 |
2022 |
Change |
|
Maximum salary deferral |
$3,050 |
$2,850 |
+$200 |
|
Maximum rollover amount |
$610 |
$570 |
+$40 |
Source: IRS Revenue Procedure 2022-38.
Other limit changes announced by the IRS include the following:
For up-to-date information like this, turn to Complete Payroll’s blog site. We have 100s of articles that can help you be on top of all issues concerning HR and payroll.