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.
More States Preparing for Pay Transparency Rules in 2025
States and localities have been adding pay transparency requirements since 2021.
Most recently, Maryland’s Wage Range Transparency Act took effect on Oct. 1. New legislation in Hawaii was also enacted in 2024, while Colorado and the District of Columbia amended their pay transparency laws.
Pay transparency is when an employer uses established practices to openly communicate pay-related information to current or prospective employees.
Upcoming Pay Transparency Updates
Several states have pay transparency laws going into effect in 2025, including the following:
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Illinois — Employers with 15 or more employees will be required to include pay scale and benefits disclosures in their job postings on Jan. 1, 2025.
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Minnesota — Also effective Jan. 1, 2025, employers with 30 or more employees must include the starting salary range and a general description of benefits and other compensation in their job postings.
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Vermont — Employers with five or more employees must include the compensation or compensation range in most job postings starting July 1, 2025.
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Massachusetts — Employers with 25 or more employees must disclose salary range information on job postings as of July 31, 2025.
Employer Takeaway
Pay transparency laws now cover more than 1 in 4 workers in the United States.
Employers should do their best to remain current on developing legislation in their jurisdictions and where their employees are located.
Contact us today for more pay transparency resources.
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