IRS Announces New Limits for 2025
By Angela Adams, CEBS, SPHR, Director, EEO & Compliance Solutions
Published October 29, 2024
Last week, the Internal Revenue Service (IRS) announced new pre-tax limits on two popular employee benefits – health flexible spending accounts (FSAs) and qualified transportation benefit accounts.
FSAs allow an employee to set aside pre-tax dollars to pay expenses not covered by the employer’s health insurance. The new annual limit for health FSA deferrals is $3,300, up from the 2024 limit of $3,200. Employees must be allowed to use and access the entire amount they elect on the first day of the plan year. Some employers worry that employees will use their pre-tax contributions early in the plan year and then quit, leaving the employer with no recourse to recoup the amounts, which are typically deducted in equal installments from the year’s paychecks. As such, employers may choose to cap their plan at a rate lower than the IRS published limit. Employees are also allowed to roll over up to $660 in 2025 for use in the following plan year, up from $640 in 2024. Employers are not required to offer the rollover option, but most do, and can also set it lower than the upper limit at their discretion.
Qualified transportation benefit programs allow employers to offer their employees the ability to set aside pre-tax contributions to pay for qualified parking, public transit, and some commuter highway vehicles. The new 2025 limit is $325, up from 2024’s $315. This amount is the maximum for all methods of getting to work, not individually, i.e., if someone uses two or three of these ways to commute, their combined maximum total is $325.
The IRS released several new tax-related limits for 2025. HR Source members with questions can contact us through the HR Hotline Online or at 800-448-4584.