IRS announces 2023 retirement and benefit plan limits, SSA announces COLA adjustment

 On October 18, 2022, the Internal Revenue Service (IRS) announced cost-of-living adjustments to the dollar limits on benefits and contributions in retirement plans for 2023.  These adjustments are in addition to previously announced increases in limits to other employee benefit plans.  In addition, the Social Security Administration recently announced the cost-of-living adjustment to the Social Security wage base for 2023.

 

The updated limits for 2023, as compared to last year’s limits, are set forth in the charts below:

 

Qualified retirement plan contribution limits	2022	2023
Section 401(k) and 403(b) plan elective deferral limit (Code Section:402(g)(1))	$20,500	$22,500
Catch-up contribution limit (for participants aged 50 or older) (Code Section: 414(v)(2)(B)(i))	$6,500	$7,500
Defined contribution plans – annual additions limit (Code Section: 415(c)(1)(A))	$61,000	$66,000
Section 457 plan elective deferral limit – deferred compensation plans of state and local governments and tax-exempt organizations (Code Section: 457(e)(15))	$20,500	$22,500
Annual compensation limit (Code Sections: 401(a)(17); 404(l); 408(k)(3)(C) and 408(k)(6)(D)(ii))	$305,000	$330,000
Other limits	2022	2023
Highly compensated employee threshold (Code Section: 414(q)(1)(B))	$135,000	$150,000
Key employee compensation threshold (Code Section: 416(i)(1)(A)(i))	$200,000	$215,000
Defined benefit plans - maximum annual benefit (Code Section: 415(b)(1)(A))	$245,000	$265,000
SIMPLE plans	2022	2023
Maximum contributions (Code Section: 408(p)(2)(E))	$14,000	$15,500
Catch-up contributions (for participants aged 50 or older) (Code Section: 414(v)(2)(B)(ii))	$3,000	$3,500

 

The Social Security Administration announced the cost-of-living adjustment to the Social Security contribution and benefit base (also known as the “taxable wage base”) for 2023.               

Social Security taxable wage base	2022	2023
Social Security taxable wage base	$147,000	$160,200

Note: Federal Insurance Contributions Act (FICA) tax rates remain unchanged. The Old-Age, Survivors, and Disability Insurance (OASDI) tax of 6.20 percent each for employers and employees (12.4 percent for self-employed individuals) applies to wages up to the Social Security annual taxable wage base.  The Medicare tax of 1.45 percent each for employers and employees is not limited to the taxable wage base and applies to all wages. An additional Medicare tax of 0.9 percent for employees only applies to all wages over specified income thresholds based on filing status ($250,000 for married filing jointly, $125,000 for married filing separately; and $200,000 for all other taxpayers).

 

The health savings account (HSA) and HDHP limits for 2023 are as follows:

HSA/HDHP limits	2022			2023
Maximum health savings account contribution	Self: $3,650 Family: $7,300			Self: $3,380 Family: $7,750
HSA catch-up contribution (for participants aged 55 or older)	$1,000			$1,000
HDHP minimum annual deductible	Self: $1,400 Family: $2,800			Self: $1,500 Family: $3,000
HDHP maximum out of pocket	Self: $7,050 Family: $14,100			Self: $7,500 Family: $15,000

The flexible spending account limits are as follows:

Flexible spending account limits	2022			2023
Health FSA	$2,850 Max. carryover to following plan year: $570			Max. carryover to following plan year: $610
Dependent care FSA	Family: $5,000** Married, filing separately: $2,500			Family: $5,000** Married, filing separately: $2,500
**Married and filing a joint return or single parent filing

Expected benefits health reimbursement

Arrangements (EBHRAs)	2022	2023
EBHRAs	$1,800	$1,950

 

Transit and parking fringe benefits limit

Transit and parking fringe benefits limit	2022	2023
Transit/parking	$280/month	$300/month

 

Action items for employers

• Update any plan documents that identify the annual limitations.
• Update participant communications as the limits may impact important benefit elections for 2023.
• Update Human Resource Information Systems (HRIS) and/or payroll systems with new limitations for administration, recordkeeping and tax reporting.
• Ensure all vendor data feeds are updated to comply with the new limits.

For more information, please contact any of the members of our Employee Benefits and Executive Compensation group.