IRS Archives - Spotlight on Benefits

IRS Issues 83(b) Election Form

Internal Revenue Code Section 83(b) elections can now be made on a standard IRS Form 15620. Previously, 83(b) elections were made on self-drafted forms. Individuals making an 83(b) election can still submit a self-drafted form, if desired.

Background on 83(b) Elections

An 83(b) election is typically made at the time a taxpayer receives a grant of unvested property, like restricted stock or profits interests. Under Code Section 83(a), property is taxed when vested and no longer subject to a substantial risk of forfeiture. Code Section 83(b) allows a taxpayer to accelerate the timing of the income tax inclusion to be as of the date of grant (prior to the property right vesting and becoming nonforfeitable). Taxpayers will make an 83(b) election in the hopes that the property’s value is lower as of the grant date than the vesting date, and to ease the administrative burden of determining the value of property at various vesting dates.

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IRS Announces 2025 Retirement Plan Limits

The Internal Revenue Service (IRS) recently announced the 2025 cost-of-living adjustments to various benefit and contribution limits applicable to retirement plans. The IRS modestly increased the applicable limits for 2025. The following limits apply to retirement plans in 2025:

The limit on elective deferrals under 401(k), 403(b) and eligible 457(b) plans increased to $23,500.
The limit on catch-up contributions by participants aged 50 or older did not change and remains at $7,500. This means that the maximum amount of elective deferral contributions for those participants in 2025 is $31,000.
The enhanced catch-up contribution limit for those ages 60-63 in 2025 is $11,250. This means that the maximum amount of elective deferral contributions for these participants in 2025 is $34,750.
The Internal Revenue Code (Code) Section 415 annual addition limit is increased to $70,000 for 401(k) and other defined contribution plans, and the annual benefit limit is increased to $280,000 for defined benefit plans.
The limit on the annual compensation that can be taken into account by qualified plans under Code Section 417 is increased to $350,000.
The dollar level threshold for becoming a highly compensated employee under Code Section 414(q) increased to $160,000 (which, under the look-back rule, applies to HCE determinations in 2026 based on compensation paid in 2025).
The dollar level threshold for becoming a “key employee” in a top-heavy plan under Code Section 416(i)(1) is increased to $230,000.

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IRS Proposed Regulations for Plan Forfeitures

Today, employees are more likely than ever to seek new employment opportunities and change jobs. These employees may leave a company before becoming fully vested in their qualified retirement plan benefits – which may result in forfeiture of their unvested benefits. What is a retirement plan sponsor supposed to do with the forfeited amount? More importantly, what is the plan sponsor allowed to do with these forfeited amounts? This is an important question, as the use of forfeitures can raise compliance questions under both ERISA and the Internal Revenue Code requirements for qualified retirement plans.

For defined contribution retirement plans, such as 401(k) plans, the IRS has typically allowed plan sponsors to apply forfeitures to offset administrative expenses or reduce employer contributions. In proposed regulations, issued in February 2023, the IRS reiterates this position, indicating that defined contribution plan forfeitures may be used to offset plan administrative expenses or reduce employer contributions, or may be reallocated to participants pursuant to a nondiscriminatory formula.

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IRS Announces Phase 2 of Pre-Examination Compliance Pilot Program

Recently, the IRS announced phase two of its expansion of the Pre-Examination Compliance Pilot Program. Under the pilot program, an employer may limit or entirely avoid an impending IRS audit if they promptly correct any identified errors via the IRS’s Self Correction Program (SCP). During phase two, the IRS will notify employers by letter that their retirement plan was selected for upcoming examination. The employer then has 90 days to review their plan’s documents and operations to determine if they meet current tax code requirements.

If the employer identifies any errors, they may self-correct the errors under the SCP. Errors that aren’t eligible for correction under the SCP can be corrected by requesting a closing agreement, and the IRS will use the favorable Voluntary Correction Program fee structure to determine the sanction amount payable.

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New Kids on the Block: IRS Creates Determination Letter Program for Individually Designed 403(b) Plans

The Internal Revenue Service (IRS) has announced that beginning June 1, 2023, it will accept determination letter applications for individually designed 403(b) retirement plans. As background, 403(b) plans are a distinct type of retirement plan for employees of 501(c)(3) tax-exempt organizations and public schools (including colleges and universities). Despite the formal distinction, though, in many respects modern 403(b) plans often resemble 401(k) plans.

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UPDATED: Changes to a Family Member’s Exchange Subsidy Eligibility

Under Internal Revenue Code (Code) Section 36B, individuals are eligible for an exchange subsidy (or premium tax credit) if their employer has not offered them affordable coverage that provides minimum value. The IRS recently released two pieces of guidance with respect to eligibility determinations under Code Section 36B – Final Regulations under Code Section 36B and Notice 2022-41. Under the new guidance, subsidized exchange coverage for family members will be based on the cost of employer-sponsored family coverage. Plans that operate on a plan year other than the calendar year may be amended to permit mid-year election changes corresponding to the new exchange subsidy eligibility rules.

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IRS Announces 2023 Retirement Plan Limits

The IRS recently announced the 2023 cost-of-living adjustments to various benefit and contribution limits applicable to retirement plans. The IRS significantly increased the applicable limits for 2023 due to the high rate of inflation in 2022. The following limits apply to retirement plans in 2023:

The limit on elective deferrals under 401(k), 403(b), and eligible 457(b) plans increased to $22,500.
The limit on additional catch-up contributions by participants age 50 or older increased to $7,500. This means that the maximum amount of elective deferral contributions for those participants in 2023 is $30,000.
The Internal Revenue Code (“Code”) Section 415 annual addition limit is increased to $66,000 for 401(k) and other defined contribution plans, and the annual benefit limit is increased to $265,000 for defined benefit plans.
The limit on the annual compensation that can be taken into account by qualified plans under Code Section 417 is increased to $330,000.
The dollar- level threshold for becoming a highly compensated employee under Code Section 414(q) increased to $150,000 (which, based on the look-back rule, is applicable for HCE determinations in 2024 based on compensation in 2023).
The dollar- level threshold for becoming a “key employee” in a top-heavy plan under Code Section 416(i)(1) is increased to $215,000.

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Relief All Around: IRS Expands Required Plan Amendment Deadline Extensions

On September 26, 2022, the IRS published Notice 2022-45, extending the deadline for required retirement plan amendments associated with qualifying coronavirus-related and disaster-relief distributions under Section 2202 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and Section 302 of Title III of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act).

Notice 2022-45 follows Notice 2022-33, released in August, which extended the deadline for plan amendments under Section 2203 the CARES Act, the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), and Section 104 of the Bipartisan American Miners Act of 2019 (Miners Act). Information on Notice 2022-33 can be found here.

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IRS Relaxes Plan Amendment Deadlines for Changes Under the SECURE Act and Other Laws

The Internal Revenue Service recently granted plan sponsors additional time to amend retirement plans to reflect changes in law under: (i) Section 2203 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act); (ii) the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act); and (iii) Section 104 of the Bipartisan American Miners Act of 2019 (Miners Act).

Sponsors of qualified plans and non-governmental Section 403(b) plans (including collectively bargained plans) now have until December 31, 2025, to adopt certain plan amendments required by these recent changes in law or to conform the written plan to operational changes permitted by these laws.

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IRS Extends Temporary Relief from “Physical Presence” Requirement Through December 31, 2022

The IRS recently issued Notice 2022-27, providing a six-month extension of the temporary relief from the physical presence requirement for certain plan elections (including spousal consents) required to be witnessed by a plan representative or notary public. Issued in response to the COVID-19 pandemic, the IRS provided initial relief from the physical presence requirement for the period January 1through December 1, 2020, provided initial extended relief through June 30, 2021, and extended relief for a second time through June 30, 2022. Most recently, Notice 2022-27 extends the relief through December 31, 2022.

The temporary relief from the physical presence requirement applies to any participant election witnessed by a notary public of a state that permits remote electronic notarization or by a plan representative, if certain requirements are satisfied. We discussed those requirements in a prior blog post on this topic.

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