Employee Benefits
Legal Alert: IRS Adjusts Health Flexible Spending Account and Other Benefit Limits for 2025
October 23, 2024
On October 22, 2024, the Internal Revenue Service (IRS) released Revenue Procedure 2024-40, which increases the health flexible spending account (FSA) salary reduction contribution limit to $3,300 for plan years beginning in 2025, an increase of $100 from 2024. Thus, for health FSAs with a carryover feature, the maximum carryover amount is $660 (20% of the $3,300 salary reduction limit) for plan years beginning in 2025. When carrying over funds from 2024 to 2025, 20% of the $3,200 salary reduction limit for 2024 is $640.
The Revenue Procedure also contains the cost-of-living adjustments that apply to dollar limitations in certain other sections of the Internal Revenue Code.
Qualified Commuter Parking and Mass Transit Pass Monthly Limit
For 2025, the monthly limits for qualified parking and mass transit are increased to $325 each, an increase of $10 from 2024.
Adoption Assistance Tax Credit Increase
For 2025, the credit allowed for adoption of a child is $17,280 (up $470 from 2024). The credit begins to phase out for taxpayers with modified adjusted gross income in excess of $259,190 (up $7,040 from 2024) and is completely phased out for taxpayers with modified adjusted gross income of $299,190 or more (up $7,040 from 2024).
Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) Increase
For 2025, reimbursements under a QSEHRA cannot exceed $6,350 (single) / $12,800 (family), an increase of $200 (single) / $350 (family) from 2024.
Reminder: 2025 HSA Contribution Limits and HDHP Deductible and Out-of-Pocket Limits
Earlier this year, in Rev. Proc. 2024-25, the IRS announced the inflation adjusted amounts for HSAs and high deductible health plans (HDHPs).
| 2025 (single/family) | 2024 (single/family) |
Annual HSA Contribution Limit | $4,300 / $8,550 | $4,150 / $8,300 |
Minimum Annual HDHP Deductible | $1,650 / $3,300 | $1,600 / $3,200 |
Maximum Out-of-Pocket for HDHP | $8,300 / $16,600 | $8,050 / $16,100 |
The ACA’s out-of-pocket limits for in-network essential health benefits have also been announced and have decreased for 2025. Note that all non-grandfathered group health plans must contain an embedded individual out-of-pocket limit if the family out-of-pocket limit is above $9,200 (2025 plan years). Exceptions to the ACA’s out-of-pocket limit rule are available for certain small group plans eligible for transition relief (referred to as “Grandmothered” plans). While historically CMS has renewed the transition relief for Grandmothered plans each year, it announced in March 2022 that the transition relief will remain in effect until it announces that all such coverage must come into compliance with the specified requirements.
| 2025 (single/family) | 2024 (single/family) |
ACA Maximum Out-of-Pocket | $9,200 / $18,400 | $9,450 / $18,900 |
ACA Reporting Penalties (Forms 1094-B, 1095-B, 1094-C, 1095-C)
The table below describes late filing penalties for ACA reporting. The 2026 penalty is for returns filed in 2026 for calendar year 2025, and the 2025 penalty is for returns filed in 2025 for calendar year 2024. Note that failure to issue a Form 1095-C when required may result in two penalties, as the IRS and the employee are each entitled to receive a copy.
Penalty Description | 2026 Penalty | 2025 Penalty |
Failure to file an information return or provide a payee statement | $340 for each return with respect to which a failure occurs | $330 for each return with respect to which a failure occurs |
Annual penalty limit for non-willful failures | $4,098,500 | $3,978,000 |
Lower limit for entities with gross receipts not exceeding $5M | $1,366,000 | $1,329,000 |
Failures corrected within 30 days of required filing date | $60 | $60 |
Annual penalty limit when corrected within 30 days | $683,000 | $664,500 |
Lower limit for entities with gross receipts not exceeding $5M when corrected within 30 days | $239,000 | $232,500 |
Failures corrected by August 1 | $130 | $130 |
Annual penalty limit when corrected by August 1 | $2,049,000 | $1,993,500 |
Lower limit for entities with gross receipts not exceeding $5M when corrected by August 1 | $683,000 | $664,500 |
Failure to file an information return or provide a payee statement due to intentional disregard | $680 for each return with respect to which a failure occurs (no cap) | $660 for each return with respect to which a failure occurs (no cap) |
About the Author. This alert was prepared for Alera Group, Inc. by Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act. Contact Stacy Barrow or Nicole Quinn-Gato at sbarrow@marbarlaw.com or nquinngato@marbarlaw.com.
The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients. This is not legal advice. No client-lawyer relationship between you and our lawyers is or may be created by your use of this information. Rather, the content is intended as a general overview of the subject matter covered. This agency and Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein. Those reading this alert are encouraged to seek direct counsel on legal questions.
© 2024 Barrow Weatherhead Lent LLP. All Rights Reserved.
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