Transforming Perks: Navigating the 2025 Tax Landscape for Fringe and Lifestyle Benefits

At the beginning of the year, teams are diligently updating records and evaluating employee benefit policies, and at Compt, we are no different. 

Recognizing that others are in a similar situation, I believed it would be beneficial to share the key updates from the IRS that will influence taxpayers when they submit their returns in 2025, and for employers to keep these in mind for their employees as well.

Fortunately, when it comes to 2025 tax modifications regarding fringe and lifestyle benefits, it’s a concise list! Here are the areas our clients wish to comprehend most, based on our program assessment, which finance teams should also keep in mind: 

• Qualified transportation fringe benefit. For the forthcoming tax year, the monthly cap for these benefits (often referred to as commuter benefits or parking allowances) has risen from $315 to $325 for a monthly cap.
• Health Savings accounts. The annual limit has increased, with yearly contributions for individuals now at $4,300 (up from $4,150) and for families $8,550, an increase from $8,300.
• Health Flexible Spending Accounts (Cafeteria Plans). For taxable years starting in 2025, the dollar limitation for employee salary reductions towards contributions to health flexible spending arrangements is $3,300, increased from $3,200 in 2024. Should the cafeteria plan allow the carryover of unused funds, the highest carryover amount is $660, an increase from $640 in 2024.
• Standard Mileage Rate. Starting January 1, 2025, the standard mileage rates for operating a car, van, pickup, or panel truck will be 70 cents per mile driven for business purposes, rising by 3 cents from 2024.

Although the taxation of lifestyle spending accounts can appear intricate, that’s where Compt can be your ally in ensuring your benefits adhere to tax regulations, as we have specifically designed our platform to prioritize tax compliance. We remain updated with regulations and integrate these rules into our platform to simplify the process for our clients, including global firms. When it pertains to the upcoming 2025 tax adjustments regarding fringe and lifestyle benefits, we are here to support you.

Searching for a tax-compliant benefits solution? Hello.

If you’re finding it challenging to navigate the complexities of taxation on employee benefits, Compt might be an excellent solution for you. Reach out to us to discover more.