The IRS announced the changes to the dollar limits on benefits and contributions under qualified retirement plans, as well as other items, for tax year 2025 [Notice 2024-80, 11-1-24].
IRC §415, which provides for dollar limits on benefits and contributions under qualified retirement plans, requires that the IRS annually adjust these limits for cost-of-living changes. The IRC also requires various other amounts to be adjusted at the same time and in the same manner as these dollar limits.
The limitation on the exclusion for elective deferrals under §402(g)(1) (e.g., §401(k) and §403(b) plans) increases to $23,500 (from $23,000) Courtesy of the PayrollOrg
The IRS released cost-of-living-adjustments (COLAs) for 2025 reflecting any increases in excludable transportation fringes and the flexible spending arrangement (FSA) deferral limit, among other changes [Rev. Proc. 2024-40, 10-22-24].
2025 COLAs for Transportation Fringes, FSA Deferrals
For 2025, the amounts that may be excluded from gross income for employer-provided qualified transportation fringe benefits and qualified parking increase to $325 per month ($315 in 2024).
For plan years beginning in 2025, the dollar limitation for voluntary employee salary reductions for contributions to health FSAs increases to $3,300 ($3,200 in 2024). For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount increases to $660 ($640 in 2024) Courtesy of PayrollOrg
The Social Security Administration (SSA) announced on Thursday, October 10, that the 2025 social security wage base will be $176,100, an increase of $7,500 from $168,600 in 2024. As in prior years, there is no limit to the wages subject to the Medicare tax; therefore, all covered wages are subject to the 1.45% tax. As in 2024, wages paid in excess of $200,000 in 2025 will be subject to an extra 0.9% Medicare tax that will only be withheld from employees’ wages. Employers will not pay the extra tax.
Maximum social security tax. The maximum social security tax employees and employers will each pay in 2025 is $10,918.20, an increase of $465 from $10,453.20 in 2024.
The IRS released the optional “high-low” per diem rates for lodging expenses and meals and incidental expenses (M&IE) that may be used instead of the General Services Administration’s “actual” per diem rates for travel to locations within the continental U.S (CONUS).
The updated high-low rates apply for travel undertaken on or after October 1, 2024. Notice 2024-68 also lists the special federal M&IE per diem rates applicable to the transportation industry and the per diem rate for incidental expenses.
High-Low Rates
The “high” rate for lodging expenses and M&IE increases to $319 (from $309) for travel to any high-cost locality, while the “low” rate increases to $225 (from $214) for travel to any other locality within CONUS. The rates for M&IE increase to $86 (from $74) for high-cost localities and to $74 (from $64) for any other locality within CONUS. The notice lists high-cost localities with a federal per diem rate of $272 or more for all of the calendar year or the portion of the calendar year specified.
The IRS released its annual inflation adjustment to the percentage of household income used to determine whether an employer’s offer of health care coverage under the Affordable Care Act (ACA) is affordable [Rev. Proc. 2024-35, 9-6-24].
For plan years beginning in 2025, the percentage of household income increases to 9.02%. The household income percentage for plans beginning in 2024 was 8.39%.
Household Income and Affordability
The ACA’s employer mandate requires applicable large employers to offer minimum essential coverage (MEC) that provides minimum value and is affordable to all of its full-time employees. Affordability is determined as a certain percentage of an employee’s household income. Using the adjusted percentage for 2025, if the required employee premium contribution does not exceed 9.02% of the employee’s household income, then the coverage is affordable under the ACA.
Safe Harbors
Because employers do not necessarily know an employee’s actual household income, there are three safe harbors that may be used instead. The safe harbors are based on: (1) an employee’s Form W-2 wages; (2) an employee’s rate of pay; and (3) the federal poverty line. If the required employee premium contribution does not exceed 9.02% of one of the safe harbors, it will be deemed affordable.
These amended employment tax returns can now be e-filed:
Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return
Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund
Form 943-X, Adjusted Employer’s Annual Federal Tax Return for Agricultural Employees or Claim for Refund
Form 945-X, Adjusted Annual Return of Withheld Federal Income Tax or Claim for Refund
MeF cannot be used yet to e-file Form 944-X, Adjusted Employer’s Annual Federal Tax Return or Claim for Refund, or Form CT-1 X, Adjusted Employer’s Annual Railroad Retirement Tax Return or Claim for Refund.
Employers should check before July 1 to ensure they are in compliance with the minimum salary levels required for their exempt employees. On July 1, the minimum salary level for exempt employees increases from $684 to $844 per week as changes made to the Fair Labor Standards Act (FLSA) executive, administrative, professional, outside sales, and computer employee (EAP) or “white collar” exemptions go into effect.
On April 23, the U.S. Department of Labor announced a final rule to increase the salary thresholds in two steps (89 F.R. 32842, 4-26-24). The first increase takes place on July 1, and the second increase is on January 1, 2025, when the minimum salary level increases from $844 to $1,128 per week.
Don’t Forget HCEs
The final rule also increases the salary requirement for highly compensated employees (HCEs) from $107,432 to $132,964 per year on July 1, then from $132,964 to $151,164 per year on January 1, 2025. As part of an exempt HCE’s annual compensation, the employee must receive at least the new standard salary amount of $844 per week on a salary or fee basis on July 1. This threshold increases to $1,128 on January 1, 2025.
On April 23, the U.S. Department of Labor (DOL) announced a final rule to increase the minimum salary level for the Fair Labor Standards Act “white collar” exemptions in two steps:
On July 1, the minimum salary level increases from $684 to $844 per week (or from $35,568 per year to $43,888 per year)
On January 1, 2025, the minimum salary level increases from $844 to $1,128 per week (or from $43,888 per year to $58,656 per year)
The final rule also requires the salary level be updated every 3 years to match the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region. This means that on July 1, 2027, and every 3 years after, the salary level will be updated.
The final rule is scheduled for publication in the Federal Register on April 26.
HCE Salary Requirements
The final rule increases the salary requirement for highly compensated employees (HCEs) from $107,432 to $132,964 per year on July 1, then from $132,964 to $151,164 per year on January 1, 2025. The HCE level also will be adjusted every 3 years at the same time as the salary threshold.
Using the “intermediate” projections, the board projects the social security wage base will be $174,900 in 2025 (up from $168,600 this year) and will increase to $242,700 by 2033. The formal announcement of the 2025 wage base will not come until mid-October.
The IRS announced the 2025 maximum contribution levels for health savings accounts (HSAs) and out-of-pocket spending limits and deductible minimums for high deductible health plans (HDHPs) that must be used in conjunction with HSAs [Rev. Proc. 2024-25, 5-9-24].
2025 Limits
The maximum annual HSA contribution for an eligible individual with self-only coverage is $4,300.
For family coverage, the maximum annual HSA contribution is $8,550.
The 2025 maximum annual out-of-pocket amount for HDHP self-only coverage is $8,300, and the maximum annual out-of-pocket amount for HDHP family coverage is twice that: $16,600.
The 2025 minimum deductible amounts for HSA-compatible HDHPs are $1,650 for self-only coverage and $3,300 for family coverage.
A fiscal year plan that satisfies the requirements for an HDHP on the first day of the first month of its fiscal year may apply that deductible for the entire fiscal year.
In addition, the IRS announced the 2025 maximum amount that may be made available for excepted benefit health reimbursement arrangements (HRAs) is $2,150.
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