Bank of America’s 2022 Workplace Benefits Report found employers play an important role in their employees’ financial wellness. Employees are stressed (62%) by current economic conditions and employers (97%) today feel very responsible for employee financial wellness (only 41% of employers felt this way in 2013). Offering financial wellness support can lead to more employee satisfaction, more company loyalty, more engagement, greater productivity, and stronger job performance.
Now is the time to make your employee benefits plans—an important part of employees’ financial wellness—for the coming year if you haven’t already done so. What you offer depends on what your company can afford, so check your budget and line up what to offer employees in addition to any salary or wage increases you expect to make. Keep in mind that most employee benefits are not subject to payroll taxes (look at the chart on page 6 of 2022 IRS Publication 15-B), so offering them is less costly than merely increasing wages. The following is a list of some key benefits to consider and the limitations that apply for 2023, which reflects cost-of-living adjustments (COLAs) due to the high rate of inflation this year. Be sure to comply with notice requirements for certain types of benefits (check with your CPA or a benefits expert on this).
Some key benefits to consider:
Contributions to retirement plans.
There are various ways to help employees save for retirement. For any of the following, the maximum amount of compensation taken into account in figuring contributions and benefits is limited in 2023 to $330,000.
- Elective deferrals by employees to 401(k) plans in 2023 are capped at $22,500 ($30,000 for those who’ll be at least 50 years old by the end of the year). If your business also makes contributions to employees’ accounts, project what this will be for the coming year.
- If you have a profit-sharing plan or SEP, the contribution limit is $66,000.
- If you have a defined benefit (pension) plan, the benefits limit is $265,000.
Note: If you don’t offer a qualified retirement plan, state law may require you to enroll employees into state-sponsored plans. More than a half dozen states have such a requirement. These plans don’t require (or even permit) employer contributions; the employer’s expense is the administrative cost of withholding and remitting employee contributions. ADP has a map showing where state-mandated plans are active, plus a list of states that have passed laws for them but not yet implemented them (with dates when they become effective).
Payments for health coverage.
There are also various ways in which you can ensure that your employees have health coverage.
- If you have a qualified small employer health reimbursement arrangement (QSEHRA), reimbursements are capped in 2023 at $5,850 for self-only coverage and $11,800 for family coverage.
- If you offer an Excepted Benefit HRA, which is a plan that supplements group or other basic health insurance, is limited in 2023 to $1,950.
- You can offer a high-deductible health plan (HDHP) and make contributions to employees’ Health Savings Accounts (HSAs). For 2023, an HDHP is coverage with a minimum deductible of $1,500 for self-only coverage and $3,000 for family coverage (plus a cap on out-of-pocket costs not exceeding $7,500 for self-only coverage and $15,000 for family coverage). The cap on contributions to HSAs in 2023 is $3,850 for those with self-only coverage or $7,750 for those with family coverage (plus another $1,000 for someone age 55 or older by year end but not yet receiving Medicare).
- Small employers that obtain coverage through a government marketplace may qualify for a tax credit if they pay at least 50% of the premiums. The full credit applies only if average compensation in 2023 does not exceed $30,700.
Note: If you have an Individual Coverage HRA, it’s up to you to fix the annual reimbursement amount for 2023. The government does not set the limit.
Various fringe benefits can be offered tax free to employees, including:
- Transportation fringe benefits (e.g., free parking, monthly transit passes): $300 per month (even though employers may not deduct the cost of this fringe benefit
- Adoption assistance: $15,950
Note: Education assistance plans, which includes repayment of student loans, are limited to $5,250 annually; they are not subject to a COLA.
Employers can enable employees to pay for certain benefits on a pre-tax basis by setting up a cafeteria plan and withholding employee contributions. The maximum annual salary reduction amount for 2023 is $3,050, with a carryover limit of $610 if the plan does not allow for a grace period. These limits apply to health FSAs. The dollar limit for salary reduction contributions to dependent care FSAs in 2023 is $5,000.
Congress is still working on a measure that could impact retirement plans in the coming year. Be sure to monitor developments…and we’ll be doing the same.