The Internal Revenue Service (IRS) has released Rev. Proc. 2024-40, which contains inflation-adjusted items for 2025 in over 60 provisions of the Internal Revenue Code. These changes will impact taxpayers filing tax returns in 2026.
The following changes are of particular importance to plan sponsors and employers.
Health Flexible Spending Cafeteria Plans
RP 2024-40 increases the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements from $3,200 in 2024 to $3,300 in 2025. The maximum carryover amount for cafeteria plans that allow unused amounts to carry over increases from $640 to $660 in 2025.
Medical Savings Accounts
Participants with self-only coverage must have an annual deductible of not less than $2,850 for the tax year 2025, which is a $50 increase over last year. The annual deductible must also be not more than $4,300, a $150 increase over last year. Furthermore, the maximum out-of-pocket expense amount increases from $5,550 to $5,700 in 2025.
Likewise, for family coverage, the annual deductible must be not less than $5,700 for the tax year 2025, up from $5,550 in 2024. The annual deductible must also be not more than $8,550, an increase of $200 over last year. The out-of-pocket expense limit rose $300 to $10,500 for the tax year 2025.
Small Employer Health Insurance Credit
The dollar amount under §45R(d)(3)(B) is $33,300 beginning in 2025. This dollar amount limits the small employer health insurance credit and determines what employers qualify as eligible small employers.
Qualified Small Employer Health Reimbursement Arrangement
The total amount of payments and reimbursements for any year may not exceed $6,350 or $12,800 for family coverage for an arrangement to constitute a qualified small employer health reimbursement arrangement under § 9831(d) in 2025.
Qualified Transportation Fringe Benefit
The monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases from $315 to $325 in 2025.
Other Notable Changes
Other notable dollar amounts adjusted for inflation that interest most taxpayers include increases to the standard deduction, marginal tax rates, alternative minimum tax exemption amounts, and earned income tax credits. Other increases include the estate tax credit, the annual gift exclusion, and adoption credits.
HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and H.R./employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.
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