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Benefits

IRS Changes to Benefit Plan Limits for 2023

November 24, 2022

Written by Complete Payroll

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.

Retirement Plan Benefits

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.

401(k) Plan Limits

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.

High Deductible Plans, Health Savings Accounts, and FSAs

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.

HSA and HDHP Limits

Health Savings Accounts (HSAs) and High-Deductible Health Plans (HDHPs)	2023	2022	Change
HSA contribution limit (employer + employee)	Self-only: $3,850 Family: $7,750	Self-only: $3,650 Family: $7,300	Self-only: +$200 Family: +$450
HSA catch-up contributions (age 55 or older)	$1,000	$1,000	no change (not indexed)
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 FSA Limits

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

Other limit changes announced by the IRS include the following:

Qualified Self Employer Health Reimbursement Arrangements
Maximum payments and reimbursements: Self-only: $5,850 (+$400) Family: $11,800 (+$750)
Qualified Transportation Limit
Transit passes and van pool services: $300 (+$20)
Qualified parking: $300 (+$20)
Adoption Benefits & Phase-out Income Thresholds
Excludable Amount: $15,950 (+$1,060)
Phase-out begins: $239,230 (+$15,820
Phase-out complete: $279,230 (+$15,820)
Social Security (FICA) Payroll Tax
Maximum earnings subject to 12.4% FICA payroll tax: $160,200 (+$13,200)

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.

Benefits

DISCLAIMER: The information provided herein does not constitute the provision of legal advice, tax advice, accounting services or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional legal, tax, accounting, or other professional advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation and for your particular state(s) of operation.