On October 22, 2024, the IRS issued Revenue Procedure 2024-40, providing certain cost-of-living adjustments for a wide variety of tax-related items, including health FSA contribution limits, transportation and parking benefits, qualified small employer health reimbursement arrangements (QSEHRAs), the small business tax credit, and other adjustments for tax year 2025. Those changes are outlined below.
Health FSA. The annual limit on employee contributions to a health FSA will be $3,300 for plan years beginning in 2025 (up from $3,200 in 2024). In addition, the maximum carryover amount applicable for plans that permit the carryover of unused amounts is $660 (up from $640 in 2024).
Dependent Care Assistance Program (DCAP). The annual limit on employee contributions to a DCAP will remain at $5,000/$2,500 for 2025 and future years unless extended or amended by Congress.
Qualified Transportation Fringe Benefits. For 2025, the monthly limit on the amount that may be excluded from an employee's income for qualified parking increases to $325, as does the aggregate fringe benefit exclusion amount for transit passes (both up from $315 in 2024).
QSEHRAs. For 2025, the maximum number of reimbursements under a QSEHRA may not exceed $6,350 for self-only coverage and $12,800 for family coverage (up from $6,150 and $12,450 in 2024).
Adoption Assistance Program. The maximum amount an employee may exclude from his or her gross income under an employer-provided adoption assistance program for the adoption of a child will be $17,280 for 2025 (up from $16,810 in 2024). This exclusion begins to phase out for individuals with modified adjusted gross income greater than $259,190 and will be entirely phased out with a $299,190 modified adjusted gross income or more.
Small Business Healthcare Tax Credit. For 2025, the average annual wage level at which the credit phases out for small employers is $33,300 (up from $32,400 in 2024).
Employers with limits that are changing (such as for health FSAs, transportation/commuter benefits, and adoption assistance) will need to determine whether their plans automatically apply the latest limits or must be amended (if desired) to recognize the changes. Any changes in limits should also be communicated to employees.
Download a copy of our Employee Benefits Annual Limits publication.
IRS Revenue Procedure 2024-40
PPI Benefit Solutions does not provide legal or tax advice. Compliance, regulatory and related content is for general informational purposes and is not guaranteed to be accurate or complete. You should consult an attorney or tax professional regarding the application or potential implications of laws, regulations or policies to your specific circumstances.
Sign up to have it delivered straight to your inbox.
Sign up