2022 Payroll and Employee Benefit Plan Dollar Limits

Each year, the government updates certain dollar limits for inflation. Here are the new numbers for 2022 along with some explanatory information:

Payroll Taxes

The Social Security Taxable Wage Base has increased to $147,000. Both employees and employers contribute to Social Security/FICA up to the taxable wage base at a rate of 6.2% for a total contribution of 12.4%.

Medicare is withheld at a rate of 1.45% on all wages, with an additional .9% withheld for employee wages over $200,000. Employers match Medicare withholding at a rate of 1.45% on all wages, without regard to the additional .9%.

401(k) and Profit Sharing Plans

The 2022 limit for 401(k) contributions (called “salary deferrals” or “elective deferrals” because the employee elects to defer part of his/her salary into the plan) is $20,500. Employees over age 50 can contribute an additional catch up contribution of $6,500 beginning in the year in which they turn 50, for a total annual contribution of $27,000.

401(k) plans limit contributions and benefits for “highly compensated employees” (HCEs). The HCE threshold is based on the previous year, so an individual is considered highly compensated for the 2022 plan year if their compensation was more than $135,000 in 2021. HCEs also include anyone with ownership of more than 5% of the company, regardless of compensation.

Both retirement plans and cafeteria plans comply with testing to ensure benefits on behalf of key employees don’t exceed certain limits. Key employees are not necessarily the same as highly compensated employees, as there’s a different definition. A key employee is anyone who satisfies any of the following tests:

• Owns more than 5% of the company;
• Owns more than 1% of the company and receives annual compensation of more than $150,000 (this number is not indexed for inflation);
• Is an officer of the company and receives compensation of $200,000 (up from $185,000 in 2021).

Defined contribution plans such as 401(k)’s and profit sharing plans are subject to an “annual additions limit”, which is the total amount that can be added to a participant’s account from all sources. Sources include salary deferral contributions from participants, matching and profit sharing contributions from the employer, and forfeitures from other participants who left the plan without being fully vested. The annual additions limit for 2022 is the lesser of 100% of the employee’s compensation or $61,000. Employees age 50+ can add their catch up contribution to this limit for a total annual additions of $67,500.

When allocating contributions and forfeitures in a defined contribution plan, maximum compensation up to $305,000 can be considered for each participant (up from $290,000 in 2021).

Other Retirement Plans

Companies with fewer than 100 employees may have a SIMPLE plan, which is similar to a 401(k) but . . . simpler to set up and administer. The maximum salary deferral for a SIMPLE plan in 2022 will be $14,000 with a $3,000 catch up contribution for employees age 50+.

Some companies have payroll deduction IRA programs. The contribution limits for IRAs did not change for 2022 and remain at $6,000 with a $1,000 catch up contribution for individuals age 50 and above.

HSA and FSA Plans

Health Savings Account (HSA) limits for 2022 are $3,650 for an individual account and $7,300 for a family account, with an additional $1,000 catch up contribution allowed for individuals age 55 and above. In order to make a valid contribution to an HSA, an individual needs to be covered by a high deductible health insurance plan (HDHP) with a deductible of at least $1,400 (single) or $2,800 (family). These plans must have maximum out of pocket amounts (including deductibles, copayments and other amounts not including premiums) of $7,050 for single coverage and $14,100 for family coverage.

Flexible Spending Account (FSA) limits for 2022 are $2,850 for medical reimbursement and back down to $5,000 for dependent care. The American Rescue Plan Act (ARPA), part of coronavirus relief legislation, included a one year increase in the amount that could be contributed to dependent care FSAs from $5,000 to $10,500 for the 2021 taxable year. Due to the pandemic, many parents ended up not spending day care expenses as anticipated during 2020 and 2021, so the legislation allowed amounts from 2020 to be fully carried over into 2021 if the employer’s plan was amended accordingly.

For Your Reference . . .

That’s a lot of information, so we’ve created this handy chart you can download for future reference!