FSA Limits 2025: A Practical Guide for HR Leaders

Ever field questions about “use‑it‑or‑lose‑it” during open enrollment? 2025 brings bigger health FSA caps and a higher carryover—opportunities that many employers and employees overlook. Set the stage now to make sure your workforce claims every tax‑free dollar they’re allowed.

Quick snapshot

FSA contribution limit — $3,300 (employee pre‑tax cap for 2025)
Household maximum — $6,600 (spouses can each elect $3,300 via separate plans)
Carryover cap — $660 (max unused funds that can roll into the next plan year)
Dependent care limit — $5,000 (unchanged amount covering daycare, preschool and after‑school programs)
Pre‑tax savings — ~30% (reduces federal, Social Security and Medicare taxes)
Election timing — annual (employees must choose a contribution each plan year)
Eligibility — 30‑hour minimum (part‑timers and self‑employed workers are generally ineligible)
Mileage reimbursement — 21¢/mile (claims for medical travel between 1/1/25 and 12/31/25)

Core essentials

A flexible spending account (FSA) lets employees set aside pre‑tax dollars to pay for qualified medical, dental and vision expenses. For 2025 the maximum health FSA election rises to $3,300—$100 more than 2024. Employers may also contribute, and if both spouses participate through their respective employers, a household could stash $6,600 tax‑free. Contributions reduce taxable income at the federal, Social Security and Medicare levels, yielding roughly 30% savings.

Plan design matters. FSAs follow a use‑it‑or‑lose‑it rule unless the employer offers a carryover or grace period, but not both. The carryover maximum increases to $660; alternatively, a grace period gives participants 2½ months after year‑end to spend remaining funds. Dependent care FSAs (DCAPs) still cap at $5,000 per household and may use a grace period but do not allow carryovers. Employers decide whether to allow run‑out periods so participants can submit prior‑year claims through a set date.

Eligible employees must elect their FSA contribution each year during open enrollment; elections do not automatically renew. Self‑employed individuals cannot participate. Per typical plan rules, employees cannot change their election mid‑year unless they experience a qualifying life event such as marriage, birth or loss of coverage. Some employers require participants to work at least 30 hours per week to qualify.

FSAs cover a broad range of qualified expenses: co‑pays, deductibles, prescription and over‑the‑counter medicines, dental and vision care, hearing aids and even eyeglasses. Mileage for medical travel is reimbursable at $0.21 per mile in 2025.

Inline insight: A Limited‑Purpose FSA (LPFSA) is available to employees with a Health Savings Account. LPFSAs restrict spending to dental and vision care and preserve HSA eligibility. Employees may contribute up to the same $3,300 cap and carry over $660. Why this matters: Offering an LPFSA gives HSA participants a way to maximize tax savings for routine dental or vision costs; HR should include an opt‑in line in open enrollment materials.

How‑to: set up and communicate your 2025 FSA

Audit plan design. Verify whether your FSA will feature a carryover or grace period. You cannot offer both. If you use a carryover, decide whether to allow the maximum $660. Establish a run‑out period for filing prior‑year claims.
Update payroll systems. Configure the $3,300 cap and associated per‑paycheck deductions. If your plan permits employer contributions, set contribution schedules accordingly and ensure spouse contributions don’t exceed household limits.
Refresh plan documents. Amend the summary plan description (SPD) and any HRIS entries to reflect 2025 limits, carryover or grace period details, run‑out dates and eligibility requirements. Include specifics on dependent care FSAs and mileage reimbursement.
Prepare open enrollment communications. Draft concise messages for employees explaining the new limits, tax savings, eligible expenses and key deadlines. Emphasize that elections must be made each year and cannot be changed mid‑year without a qualifying event.
Provide budgeting tools. Offer worksheets or calculators to help employees estimate healthcare and dependent care expenses. Include reminders to plan for big‑ticket items (e.g., orthodontia) and routine purchases.
Set up limited‑purpose FSAs. If your workforce includes HSA participants, work with your administrator to add an LPFSA option. Clarify the dental‑ and vision‑only scope and highlight the $660 carryover.
Train payroll and benefits staff. Review common scenarios (mid‑year life events, termination, run‑out claims) and ensure staff can answer questions about new limits and design features.

Inline insight: Plans must choose between a carryover and a 2½‑month grace period; the choice shapes forfeiture risk and support workload. HR teams should analyse prior utilization and support ticket volume before finalizing plan design. Why this matters: a grace period can favour participants with large year‑end balances, while a carryover is easier to administer year‑round.

Examples in practice

Scenario 1 – Mid‑size employer with carryover. A 200‑employee firm elects a $660 carryover and sets per‑paycheck deductions accordingly. HR updates the SPD, schedules webinars to explain the higher FSA cap and creates a simple worksheet to estimate expected healthcare spending. During open enrollment they encourage employees to allocate enough to cover a scheduled surgery. At year‑end they monitor unspent balances: only 8% of participants have more than $660 remaining, reducing forfeitures and administrative calls.

Scenario 2 – HSA participants using LPFSAs. A professional services company introduces a limited‑purpose FSA for employees with high‑deductible health plans. Workers use the LPFSA to pay for dental and vision care while preserving HSA contributions for long‑term medical expenses. HR highlights that the $660 carryover applies here too and includes a comparison chart in enrollment materials. Participation climbs from zero to 27% in the first year, and employees report fewer questions about HSA eligibility.

FAQ and objections

Do we have to offer an FSA? No. Employers are not required to offer FSAs, but doing so enhances benefits competitiveness and helps employees save.

What happens to unused funds? If your plan has a carryover, up to $660 rolls into the next year. Without a carryover, only a grace period or run‑out period gives employees additional time to spend or claim funds. Any remaining balance after those deadlines is forfeited.

Can employees change their election mid‑year? Generally no. Changes are only allowed after qualifying events such as marriage, birth or loss of coverage.

Do carryover funds reduce next year’s election? No. Employees can roll over the maximum and still contribute up to $3,300 the following year.

What about self‑employed workers? Self‑employed individuals cannot participate in an employer‑sponsored FSA. Offer alternative savings strategies through HSAs or individual coverage HRAs.

Actions for today

Confirm plan design. Decide whether to use a carryover or grace period and document the choice.
Update payroll and HRIS. Apply the $3,300 cap, $5,000 DCAP limit and any employer contributions.
Draft communications. Create concise emails, intranet posts and FAQs that highlight new limits and deadlines.
Schedule training. Hold a quick session for benefits and payroll teams on 2025 rules and mid‑year event handling.
Set up reporting. Establish metrics for enrollment, average election and forfeiture rates.
Coordinate vendor partners. Ensure administrators adjust debit cards, claim systems and carryover processing.

Metrics and KPIs

Enrollment rate. Percentage of eligible employees who elect an FSA; gauge program adoption.
Average election amount. Typical dollar amount per participant; helps identify under‑ or over‑funding trends.
Claim utilization. Ratio of claims paid to contributions; high utilization signals right‑sized elections.
Forfeiture rate. Portion of contributions forfeited; monitor to assess whether limits or communications need adjustment.
Carryover utilization. Share of participants using carryover funds; evaluate the value of offering this feature.
Support ticket volume / first‑response time. Track questions related to FSAs; aim to reduce volume through better education.

Forward look

Plan for 2026. The IRS typically releases new limits in October; calendar a review of plan documents and payroll systems accordingly.
Monitor employee feedback. After open enrollment, survey participants on ease of use and understanding; adjust communications and budgeting tools as needed.
Review vendor service levels. Evaluate claim turnaround times, debit card reliability and support responsiveness; renegotiate or switch vendors if necessary.
Document deadlines. Calendar carryover and grace period deadlines, run‑out dates, and dependent care claim deadlines to avoid surprises.
Educate on adjacent accounts. Include reminders about HSAs, LPFSAs, commuter benefits and adoption assistance so employees make informed choices.

Conclusion & CTA

The new $3,300 FSA cap and $660 carryover give your workforce more pre‑tax room to handle healthcare expenses and reduce their tax burden. Decisions about plan design—carryover versus grace period—and the inclusion of limited‑purpose FSAs will shape how employees engage with the benefit.

Clear communications, updated systems and thoughtful metrics will help HR teams optimize participation and minimize forfeitures. Action this week: review your plan documents and open enrollment materials to ensure they reflect 2025 limits and choices. Reach out to your benefits administrator to confirm that payroll and claim systems are ready for the new year. Encourage employees to start estimating their healthcare needs now so they can elect the right amount.