The Internal Revenue Service (IRS) recently announced the cost-of-living adjustments (COLA) down to the dollar limits for multiple retirement and welfare plans for 2022. The majority of these dollar limits that are in effect for 2021 will increase next year, reflecting the elevated levels of inflation in that last couple of months. Some limits will remain the same.
Following this announcement, The IRS and the Social Security Administration revealed the specifics of various plans. The table we made below compares the applicable dollar limits for certain employee benefit programs and the Social Security wage base for 2021 and 2022:
(Important to note: the dollar limits are typically applied on a calendar year basis; with this being said, particular dollar limits are applied on a plan-year, tax-year or limitation-year basis)
|RETIREMENT PLAN LIMITS (guidance link)||2021||Δ||2022|
|Annual compensation limit||$290,000||↑||$305,000|
|401(k), 403(b) & 457(b) before-tax contributions||$19,500||↑||$20,500|
|Catch-up contributions (if age 50 or older)||$6,500||═||$6,500|
|Highly compensated employee threshold||$130,000||↑||$135,000|
|Key employee officer compensation threshold||$185,000||↑||$200,000|
|Defined benefit plan annual benefit and accrual limit||$230,000||↑||$245,000|
|Defined contribution plan annual contribution limit||$58,000||↑||$61,000|
|Employee stock ownership plan (ESOP) limit for determining the lengthening of the general five-year distribution period||$230,000||↑||$245,000|
|ESOP limit for determining the maximum account balance subject to the general five-year distribution period||$1,165,000||↑||$1,230,000|
|HEALTH AND WELFARE PLAN LIMITS (guidance links here and here)||2021||Δ||2022|
|Health Flexible Spending Accounts|
|Maximum salary reduction limit||$2,750||↑||$2,850|
|Health FSA Carryover Limit||$550||↑||$570|
|Dependent Care Flexible Spending Accounts±|
|If employee is married and filing a joint return or if the employee is a single parent||$10,500||↓||$5,000|
|In employee is married but filing separately||$5,250||↓||$2,500|
|Excepted Benefit Health Reimbursement Arrangements||$1,800||═||$1,800‡|
|Qualified Transportation Fringe Benefit and Qualified Parking (monthly limit)||$270||↑||$280|
|High Deductible Health Plans (HDHP) and Health Savings Accounts (HSA)|
|HDHP – Maximum annual out-of-pocket limit (excluding premiums):|
|HDHP – Minimum annual deductible:|
|HSA – Annual contribution limit:|
|Catch-up contributions (age 55 or older)±||$1,000||═||$1,000|
|SOCIAL SECURITY WAGE BASE (guidance link)||2021||Δ||2022|
|Social Security Maximum Taxable Earnings||$142,800||↑||$147,000|
Expect plan sponsors to update plan administration systems and payroll to reflect the new 2022 COLA and should incorporate the upcoming limits in forms of communications such as open enrollment materials and summary plan descriptions.
Remember: Employer match or profit-sharing contributions will not be found in these limits. If an individual works for multiple employers in the same year or if an employer offers more than one plan, then anticipate one single employee contribution limit for 401k, 403b, and TSP across all plans.
For further information about applying the new employee benefit plan limits for 2022, contact us at Federal Benefits Service today.