HCE and Current Year Testing Method

[Guest think2much]

I've read that the "Highly Compensated Employee" status is based on prior year compensation. Is that still true if my company uses the current year testing method for nondiscrimination testing? In other words, will they use my compensation from 2006 instead of 2005 to determine whether I am an HCE for 2006?

[Jim Chad]

Whether you are using current or prior year testing has no bearing on determining who is an HCE. The determination is always based on ownership or compensation in the prior year (with this or a related employer)

So, on January 1, 2006 we can tell whether or not you are an HCE for 2006 based on your compensation in 2005.....unless, of course, you become an owner sometime in 2006.

[BG5150]

The determination is always based on ownership or compensation in the prior year (with this or a related employer)

And ownership in the testing ("current") year.

[Guest AJM 34]

What Compensation level would you use in 2006 to determine if you are a Highly Compensated Employee?

Would you use over $95,000 or over $100,000 in comp for 2005?

I am getting confused because the HCE limit for 2006 is $100,000, but you have to look at the prior year comp.

Thank you, AJM

[Tom Poje]

google Publication 560 and print that - (for 2006 returns) . definition of HCE with example is on page 4.

This one is a lot clearer than what was printed in the past for this particular issue. It's a pretty good publication to have on hand for other things as well.

aw nuts, here it is