Highly Compensated Employee

A highly compensated employee (HCE) is an employee who meets certain compensation criteria established by the Internal Revenue Service (IRS). These criteria are based on an employee's salary, bonuses, and other forms of compensation.

The HCE threshold is different for each type of employer. For example, the threshold for a company with 100 or fewer employees is $135,000. For a company with more than 100 employees, the threshold is $160,000.

In addition to meeting the compensation criteria, an employee must also be an employee of the company for at least one year.

HCEs are important because they are subject to different rules and regulations than other employees. For example, HCEs are subject to a higher rate of FICA taxes. They are also subject to more stringent rules regarding retirement plans and other employee benefits.

It is important for employers to understand the HCE rules and regulations so that they can comply with the law. Employers should also be aware of the potential impact of HCEs on their employee benefits plans.

Here are some additional details about the HCE rules and regulations:

• HCEs are subject to a higher rate of FICA taxes. The FICA tax rate for HCEs is 1.45% higher than the rate for other employees.
• HCEs are subject to more stringent rules regarding retirement plans and other employee benefits. For example, HCEs are subject to a higher limit on the amount of money they can contribute to their retirement plans.
• Employers should be aware of the potential impact of HCEs on their employee benefits plans. For example, if an employer has a defined benefit plan, the plan may be subject to a higher funding requirement if the plan has a large number of HCEs.

If you have any questions about the HCE rules and regulations, you should consult with a qualified tax advisor.