IRS

The IRS has issued Notice 2022-55, which contains the 2023 cost-of-living increases for qualified retirement plan dollar limitations on benefits and contributions under the Internal Revenue Code (IRC).

• Annual additions under IRC Section (Sec.) 415(c)(1)(A) for defined contribution plans: $66,000 ($61,000 for 2022)
• Annual additions under IRC Sec. 415(b)(1)(A) for defined benefit plans: $265,000 ($245,000 for 2022)
• Annual deferral limit (402(g) limit) for 401(k), 403(b), and 457(b) plans: $22,500 ($20,500 for 2022)
• Catch-up contributions to 401(k), 403(b), and 457(b) plans: $7,500 ($6,500 for 2022)
• Annual deferral limit for SIMPLE IRA and SIMPLE 401(k) plans: $15,500 ($14,000 for 2022)
• Catch-up contributions for SIMPLE IRA and SIMPLE 401(k) plans: $3,500 ($3,000 for 2022)
• IRC Sec. 401(a)(17) compensation cap: $330,000 ($305,000 for 2022)
• Highly compensated employee (HCE) definition income threshold: $150,000 ($135,000 for 2022)
• Top-heavy determination key employee definition income threshold: $215,000 ($200,000 for 2022)
• SEP plan employee income threshold for benefit eligibility: $750 ($650 in 2022)
• Taxable wage base (TWB), as noted in a prior announcement, increases to $160,200 for 2023 from $147,000; used in some integrated allocation formulas
• Qualifying longevity annuity contract (QLAC) amount excludible from required minimum distribution determinations: $155,000 ($145,000 for 2022)

IRA Contribution and Taxpayer Contribution Credit Amounts

Annual limitations for IRA contributions, deductibility for those who are active participants in employer plans, and those seeking an income tax credit for retirement saving contributions, have slightly different indices that are used for determining cost-of-living adjustments (COLAs) in employer plans. The limitations for 2023 are as follows.

• Traditional and Roth IRA contributions: $6,500 ($6,000 for 2022)
• Traditional and Roth IRA catch-up contributions: $1,000 (not subject to COLA increases)
• IRA deductibility phase-out for single taxpayers participating in employer plans rises to $73,000 - $83,000 (was $68,000 - $78,000)
• IRA deductibility phase-out for married joint filing taxpayers participating in employer plans rises to $116,000 - $136,000 (was $109,000 - $129,000)
• IRA deductibility phase-out for married with spouse an active participant in an employer plan rises to $218,000 - $228,000 (was $204,000 - $214,000)
• Roth IRA income limitations for determining maximum contribution for married joint filers: phase-out range rises to $218,000 - $228,000 (was $204,000 - $214,000)
• Roth IRA income limitation for determining maximum contribution for single filers and heads-of-households: phase-out range rises to $138,000 - $153,000 (was $129,000 - $144,000)

Taxpayers who make contributions to IRAs or deferral-type employer-sponsored retirement plans of up to $2,000 may be eligible for a special income tax credit (the “saver’s credit”) of 10, 20, or 50 percent of the amount contributed, depending on their income.

For joint filers, the maximum adjusted gross income level for

• the 50 percent tax credit is $43,000;
• the 20 percent tax credit is $47,500; and
• the 10 percent tax credit is $73,000.

For head of household filing status, the maximum adjusted gross income level for

• the 50 percent tax credit is $32,625;
• the 20 percent tax credit is $35,625; and
• the 10 percent tax credit is $54,750.

For all other filing statuses, the maximum adjusted gross income level for

• the 50 percent tax credit is $21,750;
• the 20 percent tax credit is $23,750; and
• the 10 percent tax credit is $36,500.

The IRS has issued Revenue Procedure 2022-38, which contains cost-of-living adjustments for taxable years beginning in 2023 for over 60 tax provisions, including the following health and welfare benefits.

Cafeteria Plans

The dollar limitation under Internal Revenue Code Section (IRC Sec.) 125(i) on voluntary employee salary reductions for contributions to health flexible spending arrangements is $3,050, up from $2,850 for 2022. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $610, up from $570 for 2022.

Qualified Transportation Fringe Benefit

The monthly limitation under IRC Sec. 132(f)(2)(A) for the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass is $300, up from $280 for 2022. The monthly limitation under IRC Sec. 132(f)(2)(B) for the fringe benefit exclusion amount for qualified parting is $300, up from $280 for 2022.

Qualified Small Employer Health Reimbursement Arrangement

To qualify as a qualified small employer health reimbursement arrangement under IRC Sec. 9831(d), the arrangement must provide that the total amount of payments and reimbursements for any year cannot exceed $5,850 or $11,800 for family coverage, up from $5,450 or $11,050 for family coverage for 2022.

For additional information on the 2023 inflation-adjusted limits for other tax provisions, see Rev. Proc. 2022-38.

The IRS has issued Revenue Ruling 2022-20, which contains the applicable federal rates (AFR) for November 2022. These rates are used for such purposes as calculating distributions from retirement savings arrangements that meet the requirements for substantially equal periodic payments (a 10 percent early distribution penalty tax exception), also referred to as “72(t) payments.”

The IRS has issued Notice 2022-54, which contains updated guidance on factors used in certain defined benefit (DB) pension plan minimum funding and present value calculations. Updates include the corporate bond monthly yield curve, the corresponding spot segment rates for October used under Internal Revenue Code Section (IRC Sec.) 417(e)(3), and the 24-month average segment rates under IRC Sec. 430(h)(2). IRC Sec. 417 contains definitions and special rules for minimum survivor annuity requirements in DB plans. IRC Sec. 430 addresses minimum funding standards for single-employer DB plans.

The Federal Emergency Management Agency (FEMA) has issued a disaster declaration for severe storm and flooding in Illinois, beginning October 14, 2022.

Employers with qualified retirement plans may allow participants to take hardship distributions if

• they have incurred expenses and losses because of a FEMA-declared disaster, and
• their principal residence or place of employment at the time of the disaster is located in an area designated by FEMA as eligible for individual disaster assistance.

If the employer permits hardship distributions for expenses and losses related to a federally declared disaster, participants can check fema.gov/locations to determine if they are located in a disaster area designated for individual assistance.

The IRS may also issue relief related to this disaster for certain tax-related deadlines. Additional information can be found at irs.gov/newsroom/tax-relief-in-disaster-situations and will be announced here if such relief is granted.

The IRS has released Notice 2022-53, announcing its intent to issue final regulations related to required minimum distributions (RMDs) that will apply no earlier than the 2023 distribution calendar year.

As previously announced, the IRS issued proposed regulations in February 2022. The proposed regulations clarify distribution requirements when an account owner dies after the required beginning date (RBD). The IRS proposal requires beneficiaries subject to the 10-year rule to deplete their account balance by the end of the year that contains the tenth anniversary of the original account owner’s death, and take annual distributions based on the normal single life expectancy calculation.

As this requirement applies to beneficiaries of such account owners who died in 2020 or later, the IRS acknowledges that beneficiaries were not aware of the requirement to take an RMD in 2021 and, pending the issuance of final regulations, were unsure of the requirements for 2022. Therefore, the IRS provides that a defined contribution plan that failed to make this specified RMD will not be treated as having failed to satisfy the RMD requirements. Additionally, designated beneficiaries of a plan participant or IRA owner who failed to take this specified RMD will not be assessed a missed RMD excise tax.

This specified RMD relief is limited to distributions required to be made in 2021 or 2022 under the new 10-year rule in a defined contribution plan or IRA for a designated beneficiary if

• the account owner died on or after the RBD in 2020 or 2021, and
• the designated beneficiary is not taking life expectancy payments.

The same relief under the new 10-year rule also applies to the beneficiary of an eligible designated beneficiary if

• the eligible designated beneficiary died in 2020 or 2021, and
• that eligible designated beneficiary was taking life expectancy payments.

This guidance provides plan sponsors and beneficiaries with specified RMD relief for 2021 and 2022 while the IRS finalizes its RMD rule for the 2023 distribution year. However, the Notice does not provide any additional guidance on the status of the rest of the proposed RMD rules for the 2022 distribution year. While the proposed RMD regulations required beneficiaries to apply existing rules and a reasonable, good faith interpretation of the proposed rule for 2021, neither the proposed rule or the Notice state such reasonable, good faith interpretation can be applied for 2022. 

The IRS has issued a notice and request for comments related to Form 5558, Application for Extension of Time to File Certain Employee Plan Returns. Form 5558 is a multiple use form for filers to request an extension of time to file

• Form 5500, Annual Return/Report of Employee Benefit Plan series returns,
• Form 8955-SSA, Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits, and
• Form 5330, Return of Excise Taxes Related to Employee Benefit Plans.

The IRS intends to revise Form 5558 to remove items related to the extension of time to file Form 5330 so that the DOL will be able to electronically collect the form using the EFAST2 system. Tax due for Form 5330 filers currently must be paid with Form 5558 at the time of application for extension, and the DOL EFAST2 system will not collect such IRS tax payments. The IRS further indicates that Form 8868 will be revised to allow extensions for Form 5330 and payment of excise tax due.

Comments are invited on the necessity and utility of the collection of information; accuracy of the agency’s estimate of burden including ways to minimize burden; suggestions for improving the quality, utility, and clarity of the information collected; and cost estimates of implementing the collection. Comments should be submitted on or before December 5, 2022.

The IRS has announced the postponement of certain tax-related deadlines for victims of Hurricane Ian in North Carolina. The tax relief postpones various tax filing deadlines that began on September 28, 2022. Affected individuals and households who reside or have a business anywhere in the state of North Carolina, as well as taxpayers with records located in the covered area that are needed to meet covered deadlines, qualify for relief.

In addition to extending certain tax filing and tax payment deadlines, the relief includes completion of many time-sensitive, tax-related acts described in IRS Revenue Procedure 2018-58 and Treasury Regulation 301.7508A-1(c)(1). Affected taxpayers with a covered deadline on or after September 28, 2022, and before February 15, 2023, will have until February 15, 2023, to complete the acts. This includes filing Form 5500 series returns that are required to be filed on or after September 28, 2022, and before February 15, 2023.

“Affected taxpayer” automatically includes any individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Those who reside or have a business located outside the covered disaster area, but have been affected by the disaster, may contact the IRS to request relief.

The Federal Emergency Management Agency (FEMA) has issued a disaster declaration for North Carolina Hurricane Ian, beginning September 28, 2022.

Employers with qualified retirement plans may allow participants to take hardship distributions if 1) they have incurred expenses and losses because of a FEMA-declared disaster, and 2) their principal residence or place of employment at the time of the disaster is located in an area designated by FEMA as eligible for individual disaster assistance.

If the employer permits hardship distributions for expenses and losses related to a federally declared disaster, participants can check fema.gov/locations to determine if they are located in a disaster area designated for individual assistance.

The IRS may also issue relief related to this disaster for certain tax-related deadlines. Additional information can be found at irs.gov/newsroom/tax-relief-in-disaster-situations and will be announced here if such relief is granted.

The IRS has issued a proposed rule to increase the renewal fee for Enrolled Actuaries from $250 to $680. The current user fee was set in 2007. Enrollment is for a three-year term, and individuals granted enrollment or renewal as an enrolled actuary may perform actuarial services under ERISA and practice before the IRS as provided in Circular 230.

Public comments will be accepted until December 5, 2022. A public hearing has been scheduled for December 16, 2022, at 10 a.m. ET. The proposed increase would become effective 30 days after publication of a final rule in the federal register.