The employee salary reduction contribution limit for health flexible spending accounts (health FSAs) has increased to $3,300 for 2025 (up from $3,200 from 2024). Health FSA funds are tax-free dollars that may be used to pay eligible medical expenses not covered by other health plans. While $3,300 is the new limit set by the IRS, employers should also review the limits set by their own Section 125 cafeteria plan documents. Some cafeteria plan documents may set a lower limit, or may need to be revised if an employer would like to allow employee to make salary reduction contributions up to the IRS limit as it adjusts on an annual basis.
The increase to the 2025 health FSA contribution limit also means the IRS will permit employees to carry over up to $660 of unused health FSA funds at the end of a 2025 plan year to the following 2026 plan year. Employers should verify whether they have adopted a carryover option for their health FSA under their Section 125 cafeteria plan, and if so, should check the maximum amount that may be carried over per the terms of their cafeteria plan document.
The maximum amount of DCAP benefits does not change year-to-year and remains at $5,000 (or $2,500 if married filing separately) for 2025.
Rev. Proc. 2024-40 (Oct. 22, 2024); IRS News Release IR-2024-273 (Oct. 22, 2024)