The IRS just announced the new 2025 contribution limits for medical savings accounts like flexible spending arrangements (FSAs) and healthcare savings accounts (HSAs).
Employer-sponsored FSAs allow you to build up a savings nest egg by deducting pretax dollars from your payroll. You can use those funds to pay for qualifying medical expenses or items, some of which are included on Amazon.
If you participate in one of these accounts, your contributions are tax-free. That means they are not subject to federal income tax, Social Security, or Medicare taxes. However, if you exceed those contribution limits, you could face financial penalties.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The good news: FSA and HSA contributions are higher for 2025 than last year. Here’s what you need to know.
New FSA limit for 2025
With a flexible spending account, your contributions can be used to pay for certain out-of-pocket health care costs for you, your spouse, and your dependents. As mentioned, the money you chip into the account is tax-free.
There’s one caveat: FSAs aren’t available for self-employed taxpayers. Additionally, your employer may opt to add to your FSA account, but they aren’t required to.
If you have an FSA account, here are the maximum amounts you can contribute for 2025 (tax returns normally filed in 2026).
- The FSA contributions limit for 2025 is $3,300, that’s up from $3,200 the previous year.
- If your spouse has a plan through their employer, they may also contribute up to $3,300 through payroll deductions in 2025. That means the couple could jointly contribute up to $6,600 for their household.
The maximum carryover of unused amounts to 2025 is $660, up from $640 in tax year 2024.
FSA tax advantages
FSAs are employer-sponsored savings accounts that allow you to set aside money from your paycheck, pre-tax, to pay for your healthcare and dependent care expenses.
You can use your FSA savings to pay for certain medical expenses such as deductibles, co-pays, or medical appointments. According to the IRS, some qualifying expenses include, but are not limited to:
- Prescription medications and over-the-counter (OTC) medications, with a doctor’s prescription.
- Medical equipment and supplies such as bandages and diagnostic devices.
- Prescription eyeglasses and dental work.
You can also use your FSA funds to pay for dependent care expenses for your child or elder care, that are not covered by your insurance.
Penalty for making excess contributions
If you surpass the contribution threshold on your FSA account, you will have to pay regular income taxes on the amount that exceeds the limit. But that’s not all. An excise tax of 6% will also apply to any amount over the contribution limit.
You can withdraw the excess funds before the federal tax filing deadline to avoid the penalty.
Why you should get an FSA
An FSA allows you to build savings using pre-tax dollars from your paycheck for qualifying medical expenses such as doctor’s visits, vision care, dental care, prescriptions, over-the-counter medications, or certain medical diagnostic devices.
A flexible spending account is often offered as a benefit from your employer. For 2025, you can contribute up to $3,300 tax-free, and the funds can be a safety net in case you ever need to pay out-of-pocket for some of the expenses mentioned above.
Be aware: if you don’t spend all the cash in your FSA by the end of the year, you will forfeit that remaining balance to your employer. Additionally, if you surpass your contribution limit every dollar above the threshold will be subject to tax.
If you’re self-employed and FSA is not an option for you, and you’re covered under a high deductible health plan (HDHP) you may want to consider a health savings account (HSA).
Before making a decision, make sure to understand the eligibility requirements, limitations, or expenses tied to these savings accounts.
Related Content:
- 2025 HSA Contribution Limit Rises Again
- What Are the FSA Contribution Limits for 2024?
- The ‘Three Hidden Costs’ of Health Savings Accounts (HSAs)
-
The Five Best Cruise Lines for RetireesRetirement is an ideal time for cruising. Check out the five best cruise lines for comfort, ease, and unforgettable experiences.
-
My First $1 Million: Oil and Gas Retiree, 67, Round Rock, TexasEver wonder how someone who's made a million dollars or more did it? Kiplinger's My First $1 Million series uncovers the answers.
-
IRS Paper Checks Deadline: What Happens After September 30?Tax Changes Avoid delays when IRS tax refunds and Social Security paper checks are cut off. Here’s what to know.
-
The Most Tax-Friendly States for Investing in 2025 (Hint: There Are Two)State Taxes Living in one of these places could lower your 2025 investment taxes — especially if you invest in real estate.
-
Ask the Editor, September 12: Tax Questions on 529 Plan Rollovers to a Roth IRAAsk the Editor In this week's Ask the Editor Q&A, we answer four questions from readers on transferring 529 plan money to a Roth IRA.
-
The Final Countdown for Retirees with Investment IncomeRetirement Tax Don’t assume Social Security withholding is enough. Some retirement income may require a quarterly estimated tax payment by the September 15 deadline.
-
Standard Deduction 2025 Quiz: How Much Do You Really Know?Quiz Test your knowledge of IRS rules that impact how much money you keep in your wallet.
-
IRS in Turmoil: GOP Budget Cuts and Staff Shake-Ups Threaten Taxpayer ServicesIRS Republican lawmakers advance a controversial budget bill that would gut IRS funding further, risking your 2026 tax filing season.
-
Cruise Lines Sue to Block Hawaii’s New Climate Tourism TaxState Tax Your vacation to the Aloha State could come at a higher price tag next year. Here’s why.
-
21 Last-Minute Gifts for Grandparents Day 2025 to Give Right NowHoliday Tips Last-minute gifting is never easy. But here are some ideas to celebrate Grandparents Day.
