Pursuant to IRC 415(i)(1), a key employee is any employee who, during the preceding plan year (exception for first plan year, use the current year):
- was a more than 5% owner of the employer;
- was a 1% owner of the employer having an annual compensation of more than $150,000; or
- was an officer or the employer and received compensation greater than $170,000.
With respect to the 5% and 1% ownership tests, certain attribution rules apply with regard to family members, certain trusts or other entities.
There are limitations on how many officers may be considered key employees, as illustrated in the following chart:
| Number of Employees | Maximum Number That May Be Considered Officers |
| 1-30 | No more than 3 |
| 31-499 | 10% of actual number of employees |
| 500 or more | No more than 50 |
