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.