As we approach 2025, employee benefits leaders should be aware of the upcoming changes to health flexible spending arrangements (Health FSAs) and qualified transportation fringe benefits. These adjustments, recently announced by the IRS in Revenue Procedure 2024-40, will impact your benefits planning and employee benefits strategies for the coming year.
Key Changes for 2025:
Health Flexible Spending Arrangements (FSAs)
The annual employee contribution limit for Health FSAs is rising to $3,300 for 2025 plan years, up from $3,200 this in 2024. This increase gives employees more opportunity to set aside pre-tax dollars for qualified medical expenses.
Also, the maximum carryover amount will increase to $660, up from $640. Employees may elect up to $3,300 in 2025 even if they’ve carried over up to $640 from the 2024 plan year. This adjustment allows employees to roll over a slightly larger unused balance to the next plan year, reducing potential forfeitures.
Qualified Transportation Benefits Expansion
The monthly limit for qualified transportation and parking benefits is increasing to $325, up from $315 in 2024. This $10 monthly increase applies separately to qualified parking and the combination of commuter highway vehicles and transit passes, allowing employees to set aside up to $650 per month for a combination of both.
For qualified transportation fringe benefits, both employee and employer contributions count toward the monthly limit. And just as contribution limits apply monthly, employees generally have an opportunity to change elections more frequently. Unused contributions cannot be cashed out but can be used in subsequent months.
What These Changes Mean for Your Company
The higher limits provide greater tax saving opportunities for employees, allowing them to allocate pre-tax dollars for future medical expenses and commuting costs. While these increases may seem modest, it can make your company’s compensation package more attractive to both current and prospective employees.
Action Items for Employers
It’s crucial to ensure that your systems, processes and communications are updated to inform employees about these changes and guide them on how to maximize their benefits during open enrollment.
Adjust your benefits administration systems, plan documents and payroll processes to accommodate the increased contribution limits. Then consider offering informational sessions to help employees understand the impact of these changes. This will help ensure a smooth transition and your employees will feel supported, ultimately contributing to their financial well-being and job satisfaction.
