The Internal Revenue Service (IRS) has recently announced an increase in the contribution limits for various pre-tax benefits, including Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs). These changes provide both employers and employees with enhanced opportunities to save money on healthcare, family planning, and transportation costs. Let’s break down the key updates and what they mean for you.
Flexible Spending Accounts (FSAs)
Starting in 2025, the contribution limit for FSAs will rise from $3,200 to $3,300. Here are some important points to consider:
- What is an FSA? FSAs allow employees to set aside pre-tax money for anticipated healthcare expenses. This can include a variety of eligible items, which you can view here.
- Use It or Lose It: The funds in an FSA must be used within the plan year, so it’s crucial to estimate your healthcare expenses accurately.
- Rollover Options: Employers may offer a rollover option or a two-and-a-half-month extension to use leftover funds. For 2024, the rollover amount is $640, which will increase to $660 in 2025.
Contribution Limits:
- 2024: $3,200 per year ($640 rollover if offered)
- 2025: $3,300 per year ($660 rollover if offered)
Note: Employers are not required to match the IRS maximums, so check with your plan provider for specific limits.
Health Savings Accounts (HSAs)
HSAs are another valuable tool for managing healthcare costs. Here’s what you need to know:
- Year-to-Year Savings: Unlike FSAs, the money in an HSA rolls over from year to year. However, you cannot contribute to both an HSA and an FSA.
- Eligibility: HSAs are typically offered alongside High Deductible Health Plans (HDHPs).
Contribution Limits:
- 2024: $4,150 (self-only); $8,300 (family)
- 2025: $4,300 (self-only); $8,550 (family)
High Deductible Health Plans (HDHPs)
HDHPs are health insurance plans characterized by higher deductibles and lower premiums compared to traditional plans. The minimum deductibles and maximum out-of-pocket limits for HDHPs will change from 2024 to 2025, reflecting adjustments made by the IRS.
HDHP (Self-Only Coverage)
- 2024: Minimum Deductible: $1,600; Maximum Out-of-Pocket Limit: $8,050
- 2025: Minimum Deductible: $1,650; Maximum Out-of-Pocket Limit: $8,300
HDHP (Family Coverage)
- 2024: Minimum Deductible: $3,200; Maximum Out-of-Pocket Limit: $16,100
- 2025: Minimum Deductible: $3,300; Maximum Out-of-Pocket Limit: $16,600
Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)
For small businesses that don’t offer group health plans, QSEHRA provides a way to reimburse employees for their healthcare costs:
Contribution Limits:
- 2024: $6,150 (self-only); $12,450 (family)
- 2025: $6,350 (self-only); $12,800 (family)
Transportation Tax Credits and Commuter Benefits
Commuter benefits can help employees save on public transit or parking costs, making it easier to manage daily expenses:
Contribution Limits:
- 2024: $315 per month
- 2025: $325 per month
Special Needs Adoption Assistance
Families adopting special needs children can benefit from significant tax exclusions if their employer offers an adoption assistance program:
Contribution Limits:
- 2024: $16,810 per year
- 2025: $17,280 per year
Planning for 2025
With these new contribution limits, employers should consider how to effectively communicate these benefits to employees. It’s also a good time for employees to review their plans and see how these increases can better align with their financial goals for the upcoming year. These adjustments by the IRS present a valuable opportunity for both employers and employees to make informed decisions about healthcare and other essential expenses.
Partnering with Pierce Group Benefits
At PGB, our team stays up to date on new IRS regulations and their impact on our clients’ employee benefits. To understand how these changes affect your organization, contact your dedicated Pierce Group Benefits Account Executive or reach out to a PGB Representative at partnership@piercegroupbenefits.com for further information.