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IRS Releases 2025 Inflation Adjustments including FSA Maximum
The IRS issued Rev. Procedure 2024-40 listing certain tax inflation adjustments for a wide variety of benefits arrangements, including health FSA contribution limits, qualified transportation and parking benefits, qualified small employer health reimbursement arrangements (QSEHRAs), the small employer health insurance credit, and other adjustments for the 2025 tax year.
These adjustments are outlined below:
Health FSAs
For plan years beginning in 2025, the dollar limit for contributions to health flexible spending arrangements increases to $3,300 (up from $3,200 in 2024). For plans that permit the carryover of unused amounts, the maximum carryover amount is $660 for 2025, an increase from $640 in 2024.
Qualified transportation and parking
For 2025, the monthly limit for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $325, up $10 from the limit for 2024.
QSEHRAs
For 2025, to qualify as a qualified small employer health reimbursement arrangement, the arrangement must cap the total amount of payments and reimbursements for any year to $6,350 for self-only coverage and $12,800 for family coverage.
Adoption assistance programs
For 2025, the maximum amount excluded from an employee’s gross income under an employer-provided adoption assistance program for the adoption of a child will be $17,280. This exclusion begins to phase out for individuals with modified adjusted gross income in excess of $259,190 and will be completely phased out at $299,190 modified adjusted gross income.
Small employer health insurance credits
Adjustments impact the small employer health insurance credit because the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10. 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).
Failure to file ACA information returns (Forms 1095/1094-C and B)
Failure to file returns in 2026 for calendar year 2025 is a $340 penalty for each return. The penalty is $60 if corrected within 30 days of the required filing date and $130 if corrected before August 1st.
The 2025 penalty for failure to file returns in 2025 for calendar year 2024 is $330 per return. The penalty is also $60 if corrected within 30 days of the required filing date and $130 if corrected before August 1st. Note that applicable large employers who fail to issue a Form 1095-C may incur two penalties: the IRS and the employee must each receive a copy.
Employers providing any of the applicable arrangements will need to ensure amounts are adjusted and communicated to employees, and plan documents are updated accordingly.
OCTOBER 2024