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IRS Releases 2025 Cost-of-Living Adjustments

The IRS has released the 2025 cost-of-living adjustments (COLAs) for a wide variety of tax-related limits, including limits relating to health FSAs, qualified transportation fringe benefits, qualified small employer health reimbursement arrangements (QSEHRAs)and DCAPs.

Health FSAs

For 2025, the dollar limit on employee salary reduction contributions to health FSAs will be $3,300 (up from $3,200). If the cafeteria plan permits health FSA carryovers, the maximum amount that can be carried over to the 2026 plan year is $660 (up from $640).

Qualified Transportation Fringe Benefits

For 2025, the monthly limit on the amount that may be excluded from an employee’s income for qualified parking benefits will be $325 (up from $315). The combined monthly limit for transit passes and vanpooling expenses for 2025 will be $325 (up from $315).

QSEHRAs

For 2025, the maximum amount of payments and reimbursements under a QSEHRA will be $6,350 for self-only coverage and $12,800 for family coverage (up from $6,150 and $12,450, respectively).

DCAPs

The maximum amount of DCAP benefits that can be excluded from income has not been adjusted for cost-of-living changes (it is a non-indexed limit). That amount will remain at $5,000 or $2,500 (depending on marital and filing status) for 2025 and future years unless extended or otherwise changed by Congress.

Sponsors and administrators of benefits with limits that are changing should determine whether their plans will automatically apply the latest limits or must be amended (if desired) to recognize the changes. Any changes in limits should also be communicated to employees.

Please visit www.moreton.com/news-events/ for more information and to view other client alerts. This Client Alert was written by Carolyn Cox, who provides our clients with compliance services. For additional questions, please contact Carolyn at 801-715-7110 or [email protected].

© 2024 by Moreton & Company. This Client Alert is intended to alert recipients to recent legal developments. It does not constitute the rendering of legal advice or recommendations and is provided for your general information only. If you need legal advice upon which you can rely, you must seek an opinion from your attorney.