How Many Key Employees in the Group?

[12AX7]

Company has 40 employees during the determination year. There are two 5% Owners that are also officers and 4 other employees that have comp over $160,000 that are officers. There are no exclusions that I can use in the determination of Key Employees that would reduce the 10% number of includible officers.

Are there 4 or 6 Key Employees in this example? Thanks.

[Tom Poje]

insufficient info supplied to answer the question directly, but enough to provide the answer so that it can be determined.

40 employees. max # of officers that can be key is 10%, so the max # of officers is 4.

Write down the list in comp order of the 4 highest paid officers. This list would only consist of officers making more than the officer comp limit.

now to this group of key employees add anyone who is a 5% owner (or 1% owner making more than 150000) if they are not on the list.

[12AX7]

Tom, let's assume the two 5% Owners that are also officers, have $245,000 of comp. The remaining four officers have comp above the $160,000 limit for 2011:

Officer 1 $200,000

Officer 2 $180,000

Officer 3 $175,000

Officer 4 $165,000

So, the answer is 4.

Thanks.

[Tom Poje]

yes, then officers 3 and 4 on your list would not be key because when ranked by comp they are #5 and #6 of the officers and you only use the top 4 officers..