Highly Compensated Employee


Also found in: Acronyms.

Highly Compensated Employee

An employee who owns 5% or more of the company for which he/she works or who makes more income than a certain amount set by the IRS. For tax purposes, highly compensated employees contribute less in tax deductible earnings to a qualifying retirement plan. This is because IRAs and other retirement plans do not qualify for tax advantages if their structures seem to favor highly compensated employees more than other employees.
References in periodicals archive ?
Highly compensated employees (HCEs) saving for retirement face both the Internal Revenue Service (IRS) limits on their individual contributions and the limits effectively imposed on them by their plan's need to pass nondiscrimination testing.
The court rejected the taxpayer's argument, finding that the legislative history of Section 402 showed its intent to penalize highly compensated employees, but to also prevent double taxation.
To prevent discrimination in savings plans, Section 401(m) imposes tests that effectively limit contributions by highly compensated employees (discussed under "Tax Implications," below).
In the example, the highly compensated employee received $3,000.
Highly compensated employees at nonprofits can adopt this plan as of the first of any month.
Van Dyke adds that Highly Compensated Employees who earn substantially more than the $85,000 limit might find that the salary deferral restrictions they face actually do not diminish their saving capabilities quite as much.
A company offering only a qualified plan is limiting to the highly compensated employee.
Now they have a disability program that will replace the income needs of their highly compensated employees, should they become sick or injured and are no longer able to work in their own occupation.
Dependent care assistance must be available and provided on a basis that does not discriminate in favor of highly compensated employees or their dependents.
1) This limits the relative amount of funding for highly compensated employees.
By contrast, if the trust is discriminatory, highly compensated employees (as described in Sec.
6) A highly compensated employee, for this purpose, is one who is an officer, a shareholder owning more than 5% of the employer, a highly compensated employee, or the spouse or dependent of any of these.

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