Top paid group question

[gdlfa]

The IRS definition of HCE is:

Highly Compensated Employee - An individual who:

• Owned more than 5% of the interest in the business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or
• For the preceding year, received compensation from the business of more than $115,000 (if the preceding year is 2014; $120,000 if the preceding year is 2015 or 2016), and, if the employer so chooses, was in the top 20% of employees when ranked by compensation.

I've always thought that top paid group was calculated without taking the $120K number into account, but based on the "and" in the 2nd bullet, am I incorrect? In other words, if someone makes $80K but is in the top 20% of compensation and you are using the top paid group election, are they an HCE or not?

Thanks in advance!

[mphs77]

not an HCE if they do not meet the initial condition of making over $120,000 in the prior year.

[Mike Preston]

Not.

[Jim Chad]

Top Paid group only takes people out of the HCE group for testing. It never puts anyone in.......I think.