IRS Announces 2023 Employee Benefit Plan Limits

The Internal Revenue Service (IRS) and the Social Security Administration announced the cost-of-living adjustments to the applicable dollar limits on various employer-sponsored retirement and welfare plans and the Social Security wage base for 2023. The table below compares the applicable dollar limits for certain employee benefit programs and the Social Security wage base for 2022 and 2023.*

RETIREMENT PLAN LIMITS (guidance link) 2022 Δ 2023
Annual compensation limit $305,000 $330,000
401(k), 403(b) & 457(b) before-tax contributions $20,500 $22,500
Catch-up contributions (if age 50 or older) $6,500 $7,500
Highly compensated employee threshold $135,000 $150,000
Key employee officer compensation threshold $200,000 $215,000
Defined benefit plan annual benefit and accrual limit $245,000 $265,000
Defined contribution plan annual contribution limit $61,000 $66,000
Employee stock ownership plan (ESOP) limit for determining the lengthening of the general five-year distribution period $245,000 $265,000
ESOP limit for determining the maximum account balance subject to the general five-year distribution period $1,230,000 $1,330,000
HEALTH AND WELFARE PLAN LIMITS (guidance links here and here) 2022 Δ 2023
Health Flexible Spending Accounts
Maximum salary reduction limit $2,850 $3,050
Health FSA Carryover Limit $570 $610
Dependent Care Flexible Spending Accounts±
If employee is married and filing a joint return or if the employee is a single parent $5,000 = $5,000
In employee is married but filing separately $2,500 = $2,500
Excepted Benefit Health Reimbursement Arrangements (EBHRAs) $1,800 $1,950±
Qualified Transportation Fringe Benefit and Qualified Parking (monthly limit) $280 $300
High Deductible Health Plans (HDHP) and Health Savings Accounts (HSA)
HDHP – Maximum annual out-of-pocket limit (excluding premiums):
Self-only coverage $7,050 $7,500
Family coverage $14,100 $15,000
HDHP – Minimum annual deductible:
Self-only coverage $1,400 $1,500
Family coverage $2,800 $3,000
HSA – Annual contribution limit:
Self-only coverage $3,650 $3,850
Family coverage $7,300 $7,750
Catch-up contributions (age 55 or older)± $1,000 $1,000
SOCIAL SECURITY WAGE BASE (guidance link) 2022 Δ 2023
Social Security Maximum Taxable Earnings $147,000 $160,200

 

Plan sponsors should update payroll and plan administration systems for the 2023 cost-of-living adjustments and should incorporate the new limits in relevant participant communications, like open enrollment materials and summary plan descriptions.

For further information about applying the new employee benefit plan limits for 2023, contact your regular McDermott lawyer.


* The dollar limits are generally applied on a calendar year basis; however, certain dollar limits are applied on a plan-year, tax-year, or limitation-year basis.

± Not indexed for cost-of-living adjustments, with the exception of limited guidance issued for certain years.

Jeffrey Holdvogt
Jeffrey (Jeff) M. Holdvogt advises clients regarding a wide range of employee benefits matters. He focuses primarily on the design and administration of complex pension, defined contribution and executive deferred compensation arrangements. Jeff counsels privately and publicly held corporations on ongoing day-to-day retirement and executive compensation issues, as well as employee benefits design and transition matters arising from corporate mergers, acquisitions and divestitures. Read Jeff Holdvogt's full bio.


Jacob Mattinson
Jacob M. Mattinson focuses his practice on employee benefits and matters related to 401(k), 403(b), pension, executive compensation, health care reform, and cafeteria and welfare plans. Jacob assists clients in drafting employee benefit plan documents and amendments. He represents clients in matters before the Internal Revenue Service (IRS), US Department of Labor (DOL) and Pension Benefit Guaranty Corporation with respect to plain qualification issues. Read Jacob Mattinson's full bio.


Michelle McCarthy
Michelle M. McCarthy is a partner in the employee benefits and executive compensation practice group and focuses her practice on issues pertaining to health and welfare benefit plans. Michelle represents employers, collectively bargained multiemployer plans, plan administrators, professional employer organizations, insurers and consultants in a wide array of industries including technology, entertainment, maritime, insurance, banking, aerospace, manufacturing, construction, fashion and hospitality, providing innovative but practical business-minded advice on matters pertaining to the design, implementation and administration of health and welfare plans. Read Michelle M. McCarthy's full bio.

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