On November 1, 2024, the Internal Revenue Service (IRS) announced cost-of-living adjustments (COLAs) to the dollar limits on benefits and contributions in retirement plans for 2025. These adjustments are in addition to previously announced increases in limits to other employee benefit plans. In addition, the Social Security Administration (SSA) recently announced the COLA to the Social Security wage base for 2025.
The updated limits for 2025, as compared to last year’s limits, are set forth in the charts below.
The SSA announced the COLA to the Social Security contribution and benefit base (also known as the "taxable wage base") for 2025.
Note: Federal Insurance Contributions Act (FICA) tax rates remain unchanged. The Old-Age, Survivors, and Disability Insurance (OASDI) tax of 6.20 percent each for employers and employees (12.4 percent for self-employed individuals) applies to wages up to the Social Security annual taxable wage base. The Medicare tax of 1.45 percent each for employers and employees is not limited to the taxable wage base and applies to all wages.
An additional Medicare tax of 0.9 percent for employees only applies to all wages over specified income thresholds based on filing status ($250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for all other taxpayers). Employers are responsible for withholding the 0.9 percent additional Medicare tax on an individual's wages paid in excess of $200,000 in a calendar year, without regard to filing status. An employer is required to begin withholding additional Medicare tax in the pay period in which it pays wages in excess of $200,000 to an employee and continue to withhold the tax each pay period until the end of the calendar year. There is no employer match for additional Medicare Tax.
The health savings account (HSA) and high-deductible health plan (HDHP) limits are as follows:
The flexible spending account (FSA) limits are as follows:
Excepted benefit health reimbursement arrangement (EBHRA)
Transit and parking fringe benefits limit
Action items for employers
Employers are encouraged to:
- Update any plan documents that identify the annual limitations
- Update participant communications, as the limits may impact important benefit elections for 2025
- Update Human Resource Information Systems (HRIS) and/or payroll systems with new limitations for administration, recordkeeping, and tax reporting
- Ensure all vendor data feeds are updated to comply with the new limits
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