Each year, the IRS adjusts contribution limits for various employee benefit plans, including health savings accounts (HSAs), flexible spending accounts (FSAs), and retirement plans. These updates are essential for employers to understand and implement, but keeping up with the changes can be complex and time-consuming.
When properly aligned, wellness programs can enhance the perceived value of the benefits offered and increase employee retention. This article will outline the new IRS benefit limits for 2025 and explore tips on how to align your wellness program to your benefits strategy.
Understanding Employee Benefit Limits: What They Are and Why They Matter
Annual contribution limits established by the IRS are critical for ensuring the employee benefit program remains compliant for businesses to avoid penalties, ensure accurate payroll deductions, and maintain trust with employees. These limits impact how much employers and employees can contribute to accounts like HSAs, FSAs, and retirement plans annually. Overstepping these limits — even inadvertently — can result in costly corrections, tax penalties, and even lost trust from employees.
IRS-defined limits ensure tax compliance. For programs like HSAs and FSAs, contributions beyond the allowed maximum can result in taxation of the excess, along with penalties. Retirement plans face similar issues. Over-contributing to a 401(k), for example, can trigger double taxation if not corrected in a timely manner.
Limits are adjusted annually for inflation and cost-of-living changes. The IRS typically revises these limits in the fall for the following calendar year. Adjustments are based on changes in the Consumer Price Index (CPI) and other economic indicators to preserve the real value of the contributions. Staying current with these updates ensures your company doesn’t inadvertently fall out of compliance.
Failure to stay compliant can result in penalties or disqualification of tax benefits. Besides the penalties, failing to update the system to reflect the new limits can cause issues with over- or under-deductions from payroll.
Employers must update systems, payroll, and communications annually to reflect new limits. This means revising open enrollment materials, benefits guides, digital forms, and employee-facing portals to reflect the new contribution limits. Transparent and proactive communication reduces employee confusion and minimizes errors during enrollment.
What’s New for 2025: An Overview of Updated Contribution Limits
The IRS has released its updated limits for 2025, including increases for several benefit categories. Employers must review and apply these changes to stay compliant and provide accurate information to their teams.
- HSA Contributions: Increased to $4,300 for individuals and $8,550 for families, up from $4150 and $8300 in 2024, respectively. Catch-up contributions for individuals aged 55 and older remain at $1000. When combined with high-deductible health plans (HDHPs), they can be powerful tools.
- 401(k) Contribution Limits: Increased to $23,000, with a catch-up contribution limit of $7,500 for individuals aged 50+.This increase offers employers a chance to double down on financial wellness. By linking financial education and planning workshops to 401(k) participation, employers can empower workers to take full advantage of their retirement savings options.
- FSA Contribution Cap: Increased to $3,300 (healthcare FSAs), with carryover up to $640. Employers can link wellness incentives directly to FSA-eligible services to drive program participation.
- Dependent Care FSA: Limit remains unchanged at $5,000 per household, or ($2500 for married individuals filing separately). While this cap hasn’t increased, offering employer-funded dependent care benefits or subsidies can supplement family-focused wellness initiatives.
- Transportation and Commuting: In 2025, monthly limits for transportation increased to $315 per month for parking and transit. Employers offering wellness initiatives that encourage greener commutes can integrate transportation benefits as part of a broader strategy.
Employers must update systems and educate employees to reflect these changes accurately and ensure their plans remain tax-compliant.
Designing a Wellness Program That Supports Your Benefits Strategy
Creating a wellness program that complements your strategy ensures both initiatives work together to improve engagement, retention, and well-being. By aligning wellness goals with existing benefits, employers can drive more meaningful participation and maximize ROI.
Map wellness goals to benefits offerings: Identify which wellness initiatives — like fitness challenges or mental health programs — complement your current benefits offerings. According to a report by KFF, employers’ contributions to EAP offerings have been increasing steadily since 1999. For instance, fitness reimbursements or group step challenges align naturally with HSA-qualified expenses. Mental health support services pair well with Employee Assistance Programs (EAPs), while nutrition programs can reduce claim costs for chronic illnesses covered by health plans.
Premiums and worker contributions among workers covered by employer-sponsored coverage 1999–2024. KFF.
- Use data to identify gaps: Collect data from benefit usage reports, claims data, and wellness platform analytics to uncover gaps. For example, the utilization of mental health resources by employees. Review the utilization and employee feedback to guide wellness programming that addresses unmet needs.
- Integrate wellness into onboarding: During onboarding, introduce your wellness program alongside health, dental, and retirement benefits. Show how wellness is a core benefit by introducing it during orientation and linking it to employee education.
- Incentivize through benefits alignment: To encourage wellness program participation, tie incentives directly to benefits. For example, offer rewards like additional PTO, HSA contributions, or premium discounts for participating in wellness initiatives.
- Streamline communication across programs: Employees often struggle to understand how their various benefits and wellness programs fit together. Use centralized communication platforms, such as a portal or mobile app, to unify your messaging.
- Ensure wellness campaigns reference benefit tie-ins (“Earn $100 in your HSA by completing this challenge!”), and vice versa. Regular newsletters, push notifications, and reminders can boost awareness and reduce administrative confusion.
How CoreHealth Helps You Design a Comprehensive Wellness Program
When it comes to building a wellness strategy that enhances your offering, CoreHealth gives HR leaders the flexibility and insight they need. The platform enables fully customized program design and supports personalized wellness journeys that reflect your team’s unique needs. From holistic engagement features to robust reporting, CoreHealth empowers organizations to create tailored experiences that truly align with long-term well-being goals. Discover how CoreHealth can help you design a wellness program that aligns with your benefits strategy and supports a healthier, more engaged workforce.
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