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November 12, 2024
2024-2076

IRS releases 2025 inflation adjustments for fringe benefits and Form W-2/1099 information reporting penalties

In Revenue Procedure 2024-40, the IRS announced the 2025 inflation adjustments that will apply to certain fringe benefits and to Form W-2/1099 information reporting penalties.

Medical Savings Account (MSA) limits go up in 2025

Summarized below are the 2025 limits that apply to MSAs under IRC Section 220(c)(2)(A).

 

Provision

Self-only coverage

Family coverage

High-deductible health plan: annual deductible

Not less than $2,850 (up from $2,800 in 2024) and not more than $4,300 (up from $4,150 in 2024)

Not less than $5,700 (up from $5,550 in 2024) and not more than $8,550 (up from $8,350 in 2024)

Annual out-of-pocket (other than for premiums)

Not to exceed $5,700 (up from $5,500 in 2024)

Not to exceed $10,500 (up from $10,200 in 2024)

Adoption assistance limit goes up in 2025

The limit on qualified adoption assistance (including benefits provided for children with special needs) under IRC Section 137 for 2025 is $17,280, up from $16,810 in 2024.

For 2025, the amount excludable from an employee's gross income begins to phase out under IRC Section 137(b)(2)(A) for taxpayers with modified adjusted gross income (AGI) of more than $259,190 and is completely phased out for taxpayers with modified AGI of $299,190 or more.

Health flexible spending arrangement (FSA) limit goes up in 2025

The 2025 annual limit on pretax contributions employees can make toward their health FSA through a cafeteria plan under IRC Section 125(i) is $3,300, up from $3,200 in 2024.

If the cafeteria plan permits the carryover of unused amounts, the maximum carryover amount is $660, up from $640 in 2024.

Transportation fringe benefits (parking and transit) limit goes up in 2025

The 2025 monthly limit on parking benefits under IRC Section 132(f)(2)(B) is $325, up from $315 in 2024.

The 2025 aggregate monthly limit for transportation in a commuter highway vehicle and any transit pass under IRC Section 132(f)(2)(A) is also $325, up from $315 in 2024.

Foreign earned income exclusion for 2025

For tax years beginning in 2025, the foreign earned income exclusion amount under IRC Section 911(b)(2)(D)(i) is $130,000, up from $126,500 in 2024.

Reporting penalties for Forms W-2/1099 increase for tax year 2025

The penalties that apply to late or incorrect Forms W-2 is indexed each year for inflation. The following penalties apply to late or incorrect Forms W-2 required to be furnished to employees and/or filed with the Social Security Administration for tax year 2025 (filed in 2026).

 

IRC Section 6721: Failure to timely file an accurate information return with IRS (for returns required to be filed in 2026)

Filed/corrected on or after

On or before

Penalty per return

Maximum

Maximum small employer

1/1

1/31

$0

N/A

N/A

Day after deadline (in 2026, 2/3)

30 days after required filing date (in 2026, 3/5)

$60

$683,000

$239,000

31 days after deadline (in 2026, 3/5)

8/1

$130

$2,049,000

$683,000

8/2

 

$340

$4,098,500

$1,366,000

 

intentional disregard

$680

no limit

no limit

IRC Section 6722: Failure to furnish correct payee statements (for statements required to be furnished in 2026)

Filed/corrected on or after

On or before

Penalty per return

Maximum

Maximum small employer

1/1

1/31

$0

N/A

N/A

Day after deadline (in 2026, 2/3)

30 days after required filing date (in 2026, 3/5)

$60

$683,000

$239,000

31 days after deadline (in 2026, 3/5)

8/1

$130

$2,049,000

$683,000

8/2

 

$340

$4,098,500

$1,366,000

 

intentional disregard

$680

no limit

no limit

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Contact Information

For additional information concerning this Alert, please contact:

Workforce Tax Services - Employment Tax Advisory Services

Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor
 

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