New Fringe Benefit Numbers, Other IRS Changes for 2025

The amounts you can exclude from an employee’s gross income for certain fringe benefits will increase for 2025, IRS announced.

As you know, fringe benefits are generally subject to income tax withholding as well as Social Security and Medicare taxes, unless they meet IRS requirements for exclusion from income.

And for many fringe benefits, the dollar amounts change each year based on the cost-of-living adjustment (COLA).

Revenue Procedure 2024-40 contains those dollar amounts.

Here are some highlights:

Prepare for Higher Amounts

First, the limit on pretax deductions for health flexible spending arrangements (FSAs) is going up.

Employees will be able to contribute up to $3,300 through salary reductions next year, IRS said. Currently, the limit for this fringe benefit is $3,200.

If your cafeteria plan allows employees to carry over unused FSA amounts, take note of the new maximum amount you can allow for 2025: It’s $660 (up from $640 this year).

Companies with fewer than 50 full-time employees may consider offering qualified small employer health reimbursement arrangements (QSEHRAs).

With a QSEHRA, the total amount of payments and reimbursements can’t exceed $6,350, or $12,800 for family coverage (that’s up from $6,150 and $12,450, respectively).

Employers should also take note of the monthly limits for qualified transportation fringe benefits (QTFBs). They’ll also increase in 2025.

If you provide QTFBs, the aggregate exclusion for transportation in a commuter highway vehicle and any transit pass will be $325 per month (up from $315). Likewise, for qualified parking, the monthly limit will be $325 (up from $315).

For employers that have a qualified adoption program, the amount excludable from gross income will be $17,280 (currently it’s $16,810). Note: The same amount applies if the child has special needs.

That amount begins to phase out if the taxpayer has a modified adjusted gross income of more than $259,190 (now, $252,150). It’s completely phased out at $299,190 (now, $292,150).

For periodic payments received under qualified long-term care insurance contracts or under certain life insurance contracts, the limit on the amount of per diem payments will be $420 in 2025. Important note: It had dipped to $410 for 2024, but it’ll be heading up again.

Another fringe benefit some employers choose to offer is medical savings accounts (MSAs). The 2025 COLA affects the high deductible health plans associated with MSAs. Here are the numbers:

• self-only coverage: the deductible range must be between $2,850 and $4,300, and the maximum out-of-pocket expenses have been set at $5,700, and
• family coverage: the deductible range must be between $5,700 and $8,550, and the maximum out-of-pocket expenses have been set at $10,500.

Reminder: The IRS released the updated numbers for health savings accounts earlier in the year. They’ll also be increasing for inflation once the new year begins.

2025 Income Tax Withholding

In addition to fringe benefits, other updates included in Revenue Procedure 2024-40 will allow you to update your payroll system.

The federal income tax rate tables have been adjusted for inflation. As expected, though, the applicable rates remain the same (10%, 12%, 22%, 24%, 32%, 35% and 37%).

Here’s a peek at some information found on the tax rate tables:

The lowest rate of 10% will apply to taxable income up to:

• $11,925 if filing single or married filing separately
• $17,000 if filing head of household, and
• $23,850 if married filing jointly.

As for the top rate of 37%, it’ll kick in when taxable income exceeds:

• $375,800 if married filing separately
• $626,350 if filing single or head of household, and
• $751,600 if married filing jointly.

The standard deduction, according to filing status, will be:

• $15,000 – if filing single or married filing separately
• $22,500 – if filing head of household, and
• $30,000 – if filing married filing jointly.