Updated October 29, 2026. Quick answer: The key employee compensation threshold under section 416(i) for 2026 is $235,000, up from $230,000 in 2025, per IRS Notice 2025-67. It is the dollar test that decides which officers count as key employees when a plan is checked for top-heavy status. The 2027 version has its own page, the key employee limit for 2027.
More on the 2026 tax figures: the defined benefit plan limit for 2026.
The 2026 threshold
The IRS Notice says the section 416(i)(1)(A)(i) key employee threshold, in its words, “for top-heavy plan purposes is increased from $230,000 to $235,000.”
| Year | Officer compensation test | Change from prior year | Source |
|---|---|---|---|
| 2025 | $230,000 | Prior-year figure in IRS Notice 2025-67 | |
| 2026 | $235,000 | +$5,000 (computed) | IRS Notice 2025-67 |
Who is a key employee
Section 416(i)(1)(A) defines a key employee as someone who, at any time during the plan year, is an officer with annual compensation greater than the dollar amount, a 5-percent owner, or a 1-percent owner paid more than $150,000. Only the officer test carries the adjusted amount. The statute’s indexing sentence reads: “the $130,000 amount in clause (i) shall be adjusted at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2001, and any increase under this sentence which is not a multiple of $5,000 shall be rounded to the next lower multiple of $5,000.”
| Who | Test in the statute | Adjusted for inflation |
|---|---|---|
| An officer of the employer | Annual compensation greater than a dollar amount ($130,000 in the statute, adjusted each year) | Yes |
| A 5-percent owner | No dollar test | No |
| A 1-percent owner | Annual compensation from the employer of more than $150,000 | Not named in the adjusting sentence |
There is also a cap on how many officers count: “no more than 50 employees (or, if lesser, the greater of 3 or 10 percent of the employees) shall be treated as officers.”
Why the threshold matters
A plan is top-heavy when key employees hold too much of it. For a defined contribution plan the statute says it is a top-heavy plan if “the aggregate of the accounts of key employees under the plan exceeds 60 percent of the aggregate of the accounts of all employees under such plan.” A top-heavy plan must meet added vesting and minimum contribution rules; for the minimum contribution in a defined contribution plan the statute says “not less than 3 percent of such participant’s compensation” for each non-key employee. Section 416(c)(2)(B) adds that the percentage “shall not exceed the percentage at which contributions are made (or required to be made) under the plan for the year for the key employee for whom such percentage is the highest for the year.” Employer matching contributions are taken into account in meeting the minimum.
Check of the 2026 figure
Using public inflation data: the BLS CPI-W averaged 174.133 for July to September 2001 and 317.265 for July to September 2025, a ratio of 1.82197. $130,000 times 1.82197 is $236,856 (computed), which rounds down to a multiple of $5,000, or $235,000. That matches the Notice. This is our arithmetic on public data, shown to explain the 2026 figure.
Common mistakes
- Using the 401(a)(17) pay limit ($360,000 for 2026) as the key employee threshold. They are different tests with different figures; see the 401(a)(17) pay limit for 2026.
- Assuming every owner is tested on compensation. A 5-percent owner is a key employee at any pay level.
- Using last year’s $230,000 for 2026 plan years. The Notice raised the threshold to $235,000.
Related: the 401(a)(17) pay limit for 2026, the highly compensated employee limit for 2026, the total 401(k) limit for 2026, and the key employee limit for 2027.
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Answer againSources
- Internal Revenue Service, Notice 2025-67, 2026 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Changes in Cost-of-Living: www.irs.gov
- 26 U.S.C. 416, Special rules for top-heavy plans (U.S. Code, 2024 edition, U.S. Government Publishing Office): www.govinfo.gov
- Bureau of Labor Statistics, CPI for Urban Wage Earners and Clerical Workers (CPI-W), U.S. city average, all items, series CWUR0000SA0 (public data API): api.bls.gov
Read from the primary documents linked above on October 29, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer or the IRS itself is the right place to confirm anything consequential.