It is likely that people will think about this new IRS rule in 2025, especially since so many people are having trouble paying their medical bills. The most you can put into flexible spending accounts (FSAs) and health care savings accounts (HSAs) has been raised.
One way to save money is through an FSA from your employer. This account lets you set money aside for things like medical costs.
More money can be saved because the money comes from your pay before taxes are taken out. You might have to pay taxes on the money though.
You can also put money into an HSA before taxes and use it to pay for certain medical costs. You can only put money into an HSA, though, if you have a plan that is HSA-eligible.
This type of plan is also called a High Deductible Health Plan (HDHP), and it only pays for preventive care before the deductible.
Because these accounts are a great way for many workers to save for the future, the IRS has raised the most that can be put into them. But remember that you could get fined if you go over those limits.
Also, remember that you can not have both of these accounts at the same time. To keep things easy, we will just talk about the FSA. The limits are the same for both.
Big changes to the FSA for 2025
In 2024, the most money you could put into an FSA was $3,200. That limit went up to $3,300 in 2025.
Also, if your spouse has a plan through their job, they can contribute up to $3,300 in 2025 by having their pay taken out. In 2025, your family will give a total of $6,600.
They are meant to be used because they help pay for some of your health care costs, as well as those of your partner, dependents, and yourself. In other words, you can only carry over a certain amount of money from one year to the next.
It was possible to carry over $640 from one year to the next in 2024. In 2025, it will be possible to carry over $660.
You will have to give your company the rest of the money in your FSA if you do not spend it all by the end of the year, minus the amount you carry over.
Taxpayers who are self-employed can not use these accounts because they are paid for by employers.
Even more, not every company has to do this. If you have a high deductible health plan (HDHP), you may need to save for qualified medical costs in a different way, like an HSA.
There will be no taxes on the same amounts of money you put in, so you can keep giving. It will be easier for you to get medical help.
The IRS says that the qualifying costs are, but are not limited to:
- Payment plans, co-pays, or doctor visits
- Things like bandages and testing tools that are used in medicine.
- Eyeglasses and dental work with a prescription.
- Other things you can do with your FSA money are pay for child or adult care costs that aren’t covered by your insurance.
The IRS charges fees for making too many donations
It is possible to put more money into your FSA account, but you will have to pay regular income taxes on the extra money. Any amount you put in over the limit will be taxed at a rate of 6% as a fine.
An easy way to avoid the extra tax is to report the extra gift before the federal tax deadline and take out the extra money. The account will then be in line with the rules, and the money will only be taxed at the rate that would have been applied anyway.
