The IRS recently released Revenue Procedure 2024-40 (Rev. Proc. 24-40), which includes the inflation-adjusted limit for 2025 on employee salary reduction contributions to health flexible spending accounts (FSAs). For plan years beginning in 2025, the adjusted dollar limit on employees’ pre-tax contributions to health FSAs increases to $3,300. This is a $100 increase from the 2024 health FSA limit of $3,200.
The Affordable Care Act (ACA) imposes a dollar limit on employees’ salary reduction contributions to health FSAs. Employers should ensure their health FSAs will not allow employees to make pre-tax contributions over $3,300 for the 2025 plan year. Employers can impose a lower limit on employees’ pre-tax contributions to a health FSA. Employers should communicate their 2025 limit to employees as part of the open enrollment process.
Pre-tax Contributions
The ACA’s dollar limit applies only to employees’ pre-tax contributions to a health FSA. Nonelective employer contributions to a health FSA (for example, matching contributions or flex credits) generally do not count toward the health FSA contribution limit. However, if employees may elect to receive the employer contributions in cash or as a taxable benefit, then the contributions must be treated as salary reductions and counted toward the health FSA contribution limit.
Per-employee Limit
The health FSA limit applies on an employee-by-employee basis. Each employee may only elect up to $3,300 in salary reductions in 2025, regardless of whether they have family members who benefit from the funds in that FSA.
Health FSA Carryovers
Employers with health FSAs may allow employees to carry over a certain amount of funds remaining at the end of a plan year to reimburse eligible expenses incurred in the plan year immediately following. The limit on health FSA carryovers increases to $660 for plan years beginning in 2025. Employers who allow carryovers may impose their own limit that is lower than the maximum carryover limit.
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