IRS Provides Flexible Spending Information That Plan Advisers Can Share With Clients

Plan advisers and plan sponsors should take note: The IRS published a reminder with information about health care flexible spending arrangements to help encourage taxpayers making open enrollment elections to take advantage of FSAs by allocating tax-free dollars for medical expenses not covered by health insurance.

Employees participating in an FSA can contribute up to $3,300 in 2025 through payroll deductions, the IRS noted. Contributions are tax-free, exempt from federal income tax, Social Security tax and Medicare tax, allowing for substantial savings on out-of-pocket medical costs.

For households with multiple plans, there is an added benefit: If both partners have access to FSAs through their respective employers, each may contribute up to $3,300, collectively putting aside up to $6,600. Some employers may also opt to contribute to their employees’ FSAs, further boosting potential savings.

FSAs can carry over some unused funds. For 2025, the maximum carryover amount from 2024 is $660, up from $640 participants could carry over in 2024.

Eligible expenses cover a broad range of medical costs, including deductibles, co-pays and services like dental and vision care. Many over-the-counter items such as allergy medications, sunscreen and even eyeglasses are also FSA-eligible. Employees are encouraged to review their expected health expenses for the upcoming year to determine their FSA contribution amount.

FSAs are offered at the discretion of employers, and not all companies provide the benefit. Self-employed individuals are not eligible for FSAs. For those interested in participating, the IRS provided further information on its website at this link.

Worker Health Care Preferences

Separately, survey findings released by Voya Financial showed a strong preference among American workers to stick with prior health plan choices during open enrollment, with 91% saying they tend to select the same health plan each year. Conducted in preparation for the 2024 enrollment season, Voya found that many workers make these decisions quickly, with 49% of employees spend less than 20 minutes reviewing benefits information.

Voya also shed light on employees’ hesitance to select high-deductible health plans, often associated with health savings accounts, partly due to the plan’s name. Labeling bias affects decisions significantly: When plans were labeled “high-deductible,” only 26% opted for HDHPs, while the number rose to 48% when the label was removed.

The survey also revealed that only 3% of respondents said they fully understand HSA benefits, underscoring a need for greater education to maximize health care savings. This is an opportunity for employers to guide employees to make informed benefits choices, according to Nate Black, a vice president of health solutions product at Voya Financial.

The findings are from two Voya Financial Consumer Insights & Research Surveys. One was conducted from September 27 through October 7, among 345 American adults aged at least 18, who work either full-time or part-time. The other was conducted from September 25 through 27, among 2,201 Americans aged at least 18, featuring 513 benefits-eligible working Americans.