2025 Health FSA Limit Increases to $3,300

By Brian Gilmore
October 22, 2024 - NEWFRONT

The IRS has released Revenue Procedure 2024-40 confirming that for plan years beginning on or after January 1, 2025, the health FSA salary reduction contribution limit increases to $3,300.

The adjustment for 2025 represents a $100 increase to the $3,200 health FSA salary reduction contribution limit for 2024.

The contribution limit is set by the ACA (originally $2,500) and adjusts in $50 increments based on a complex cost-of-living calculation tied to consumer price index increases. The inflation levels in 2024 were sufficient to boost the health FSA salary reduction contribution limit by two $50 increments ($100 total) to $3,300 for plan years beginning on or after January 1, 2025.

What About the Carryover Limit into 2025?
The indexed carryover limit for plan years starting in calendar year 2025 to a new plan year starting in calendar year 2026 increases to $660.

The $500 carryover limit is indexed at 20% of the maximum health FSA salary reduction contribution for the plan year. The indexed carryover limit increases in multiples of $10. The adjustment to $660 (20% of the $3,300 limit) for amounts carried into 2026 represents a $20 increase to the $640 carryover limit in effect for amounts carried into 2025.

• Carryover Limit from a Plan Year Starting in 2024 to a Plan Year Beginning in 2025: $640

• Carryover Limit from a Plan Year Starting in 2025 to a Plan Year Beginning in 2026: $660

What About Employer Health FSA Contributions?
As a reminder, employer contributions (including non-cashable flex credits) generally cannot exceed $500 per plan year for the health FSA to maintain excepted benefit status (absent a dollar-for-dollar matching structure). Non-excepted health FSAs generally cannot comply with the ACA market reform mandates.

Therefore, in most cases the maximum health FSA amount available for plan years beginning on or after January 1, 2025 is limited to $3,300 (max employee salary contribution) + $500 (max employer contribution, if offered) = $3,800 (combined).

Also, keep in mind that the health FSA eligibility cannot be broader than the major medical plan eligibility to maintain excepted benefit status (as required by the ACA). In other words, employers cannot offer the health FSA to an employee who is not eligible for the major medical plan (regardless of enrollment).

Other Notable 2025 Health and Welfare Employee Benefit Amounts

• Dependent Care FSA: The dependent care FSA limit remains fixed (with no inflation adjustment) at $5,000. Note that ARPA temporarily increased the dependent care FSA limit to $10,500 for 2021 only. The limit has since reverted back to the standard $5,000 cap, and the IRS has confirmed that only an act of Congress can modify the $5,000 statutory limit.
• Commuter Benefits: The 2025 transit pass/vanpooling and parking limits is $325 per month (up from $315). As a reminder, commuter plans can now permit transit pass/vanpooling amounts to be rolled over to a parking benefit balance (and vice versa) under new IRS guidance. See our Newfront Fringe Benefits for Employers Guide for more details.
• Adoption Assistance: The 2025 adoption assistance plan limit is $17,280 per child (up from $16,810). See our Newfront Fringe Benefits for Employers Guide for more details.
• HSA Limits: The IRS released the increased 2025 HSA limits back in May. The individual contribution limit is $4,300 (up from $4,150), and the family contribution limit is $8,550 (up from $8,300). See our full alert and our Newfront Go All the Way with HSA Guide for more details.
• ACA Employer Mandate Affordability: The 2025 affordability safe harbor percentage increases to 9.02% (up from 8.39%). This sets the federal poverty line affordability safe harbor at a $113.20 maximum monthly employee-share of the premium for the lowest-cost plan option providing minimum value at the employee-only tier. See our full alert for more details.
• ACA Pay or Play Penalties: For the first time, the annualized employer mandate pay or play penalties decrease in 2025 to $2,900 (the Section 4980H(a) “A Penalty”) and $4,350 (the Section 4980H(b) “B Penalty”). See our Newfront ACA Employer Mandate & ACA Reporting Guide for more details.
• ACA Reporting: The deadline to furnish 2024 Forms 1095-C to employees is March 3, 2025. The IRS recently finalized regulations making permanent the 30-day extension from the otherwise standard January 31 deadline (March 2, 2025 falls on a Sunday).
  
  Keep in mind that IRS did not extend the good faith enforcement safe harbor from penalties for incorrect or incomplete information on the Forms 1094-C and 1095-C, which is generally $330 per return in 2025.
  
  The Form 1094-C and copies of the Forms 1095-C (or 1094-B and 1095-B for self-insured non-ALEs) must be filed electronically with the IRS by March 31, 2025. As a result of recent IRS regulations that took effect in 2024, virtually all employers need to file electronically. This requires engaging with a third-party vendor that can complete the electronic filing. See our full alert for more details.
• PCORI Fee: The IRS has not yet released the July 2025 PCORI fee for plan years that end on or after October 1, 2024, and before October 1, 2025 (including 2024 calendar plan years), but it is projected at $3.38 per covered life. See our full alert and our Newfront Compliance Considerations for Self-Insured Plans Guide for more details.
• San Francisco HCSO: The 2025 required health expenditure rates are $3.85 per hour payable for large employers (up from $3.51) and $2.56 per hour payable for mid-sized employers (up from $2.34). See our full alert and our Newfront San Francisco HCSO Guide for more details.

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).