The IRS has officially raised the stakes for the 2025 benefits year, announcing increased contribution limits for Health Care Flexible Spending Accounts (FSAs). For federal employees, this adjustment offers a valuable opportunity to lower taxable income and offset rising medical costs. However, as reported by FEDweek, a higher limit also increases the risk of the notorious “use-or-lose” rule if not managed correctly.
📈 The 2025 Numbers You Need to Know
For the 2025 plan year, the IRS has adjusted the limits to account for inflation:
- Maximum Contribution: You can now contribute up to $3,300, an increase of $100 from 2024.
- Carryover Limit: The amount of unused funds you can roll over into 2026 has increased to $660, up $20 from the previous year.
- Dependent Care FSA: This limit remains unchanged at $5,000 per household (or $2,500 if married filing separately).
While an extra $100 might seem modest, the tax advantages are significant. Because FSA contributions are pre-tax, a typical employee effectively saves roughly 30% on every dollar spent on eligible medical expenses like co-pays, prescriptions, and dental work.
⚠️ Sound Data: The Billion-Dollar Forfeiture Problem
While the tax savings are powerful, the risk of losing your hard-earned money is real. Recent data reveals a startling inefficiency in how many employees manage these accounts:
- Billions Lost Annually: According to the Employee Benefit Research Institute (EBRI), nearly 50% of FSA holders forfeited money back to their employers in recent years because they failed to spend it by the deadline.
- Average Loss: The average forfeiture is approximately $422 per person. Across the workforce, this amounts to over $4 billion in lost wages annually.
- The “Break-Even” Reality: With rising healthcare costs, the average family now spends thousands annually on out-of-pocket expenses. However, blindly maxing out your FSA to $3,300 without a plan increases the statistical likelihood that you will be part of the 50% who lose money.
🛡️ Strategic Planning to Stop the Leak
The key to mastering your FSA is finding the “sweet spot”—contributing enough to maximize your tax break but not so much that you hand money back to the government.
This is where Internal Benefit Advisors provides essential value. We help you move from guesswork to a data-driven strategy.
Here is how we help you optimize your FSA:
- Precision Forecasting: We analyze your historical medical, dental, and vision spending (including those new glasses or orthodontia needs) to calculate a contribution amount that is safe and effective.
- Carryover Management: We help you track your balance throughout the year to ensure you never exceed the $660 carryover threshold, preventing accidental forfeiture.
- Benefit Integration: We look at how your FSA pairs with your specific FEHB or FEDVIP plan to ensure you aren’t paying for coverage twice or missing out on eligible reimbursements.
Don’t let the “use-or-lose” rule confiscate your salary.
Take the definitive step to keep every dollar you earn. Contact Internal Benefit Advisors today for a comprehensive benefits optimization review.
References
- FEDweek. “Health Care FSA Account 2025.”
- Internal Revenue Service (IRS). Revenue Procedure 2024-40.
- Employee Benefit Research Institute (EBRI). Vital Statistics on Flexible Spending Accounts.
- FSAFEDS. 2025 Contribution and Carryover Limits.
- Internal Benefit Advisors. Retrieved from https://internalbenefitadvisors.com
