2025 cost-of-living adjustments (COLAs) for a wide variety of tax-related items released.
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), adoption assistance, DCAPs, the small business health care tax credit, and the premium tax credit.
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).
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).
Qualified small employer health reimbursement arrangements (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).
Adoption Assistance Exclusion and Adoption Credit
The maximum amount that may be excluded from an employee’s gross income under an employer-provided adoption assistance program for the adoption of a child will be $17,280 for 2025 (up from $16,810).
In addition, the maximum adoption credit allowed to an individual for the adoption of a child will be $17,280 for 2025 (up from $16,810).
Both the exclusion and the credit will begin to be phased out for individuals with modified adjusted gross incomes greater than $259,190 and will be entirely phased out for individuals with modified adjusted gross incomes of $299,190 or more.
Dependent Care Assistance Program (DCAP)
The maximum DCAP benefits that can be excluded from income remains $5,000 or $2,500 (depending on marital and filing status) for 2025.It will remain the same for future years (it is a non-indexed limit) unless changed by Congress. Nevertheless, there are adjustments to certain general tax limits that are relevant to an individual’s federal income tax savings under a DCAP.
Small Business Health Care Tax Credit
For 2025, the average annual wage level at which the tax credit begins to phase out for eligible small employers will be $33,300 (up from $32,400). The maximum average annual wages to qualify for the credit as an “eligible small employer” for 2025 will be twice this amount, i.e., $66,600.
Premium Tax Credit
For tax years beginning in 2025, the following limitations on the tax for excess advance credit payments will apply:
For unmarried individuals (other than surviving spouses and heads of household), $375 for household income less than 200% of the federal poverty line (FPL); $975 for household income at least 200% but less than 300% of FPL; and $1,625 for household income at least 300% but less than 400% of FPL.
For all other taxpayers, $750 for household income less than 200% of FPL; $1,950 for household income at least 200% but less than 300% of FPL; and $3,250 for household income at least 300% but less than 400% of FPL. This tax is imposed if a taxpayer’s advance premium tax credit payments for health insurance purchased through an Exchange for a year exceed the allowed credit.
Penalties
The IRS has also adjusted the penalty amounts that apply to information returns and individual statements (including Forms 1094 and 1095).
EBIA Comment: Sponsors and administrators of benefits with limits that are changing will need to determine whether their plans 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. The 2025 COLAs for HSAs and EBHRAs were announced earlier this year. For more information, see EBIA’s Cafeteria Plans manual at Sections XIX.F (“Limitation on Health FSA Salary Reductions”) and XXIII.C (“DCAP Participation vs. Claiming the Dependent Care Tax Credit”); EBIA’s Fringe Benefits manual at Sections III (“Qualified Adoption Assistance Programs”) and XX (“Qualified Transportation Plans”); EBIA’s Consumer-Driven Health Care manual at Section XXVII.C (“QSEHRA Reimbursements, Benefit Limits, and Funding”); EBIA’s Health Care Reform manual at Sections XXI.G (“Premium Tax Credits”) and XXVI (“Small Business Health Care Tax Credit”); and EBIA’s Form 1094/1095 Workbook at Section X.D (“Penalties, Corrections, and Replacement Filings”).
Contributing Editors: EBIA Staff.
