SOCIAL SECURITY WAGE BASE
Wages will be taxed up to $176,100 for FICA in year 2025. The 2025 rates for FICA (6.2%) and Medicare (1.45%) remain unchanged.
FUNDING 2025 RETIREMENT PLANS
Minor changes were made to retirement plan funding for 2025. Funding limits for employee payroll contributions to various types of “qualified” retirement plans during 2025 are as follows:
- 401k, 403b, 457 govt. plans – maximum employee elective deferral of $23,500 with additional catch-up of $7,500 for employees 50 and over.
- BRAND NEW for 2025 – “super catch-up” for those ages 60-63 of 50% more than the regular age 50 catch-up or an additional $3,750 in employee funding. So, employees ages 60-63 may contribute up to $34,750. (See our recent blog post about the Secure Act 2.0.)
- BRAND NEW for 2025 – “super catch-up” for those ages 60-63 of 50% more than the regular age 50 catch-up or an additional $3,750 in employee funding. So, employees ages 60-63 may contribute up to $34,750. (See our recent blog post about the Secure Act 2.0.)
- SIMPLE IRA – maximum employee elective deferral of $16,500 with additional catch-up of $3,500 for employees 50 and over
- BRAND NEW for 2025 – “super catch-up” for those ages 60-63 of 50% more than the regular age 50 catch-up or an additional $1,750 in employee funding. So, employees ages 60-63 may contribute up to $21,750 to SIMPLE IRA’s in 2025.
*An employee must be at least age 50 by 12/31/25 to contribute the “catch-up” contributions, and ages 60-63 by 12/31/25 to participate in the “super catch-up.”
NOTE – The maximum compensation which can be “counted” for defined contribution retirement plans is $350,000 for 2025 (which produces a funding “cap” of $70,000 in 2025).
HEALTH SAVINGS ACCOUNTS
The 2025 annual funding limits to health savings accounts (HSA’s) are $4,300 for self-only and $8,550 for family. Employees age 55 – 65 can fund additional “catch-up” amounts of $1,000 to HSA’s (to $5,300 for self-only and $9,550 for family HSA accounts).
These 2025 annual funding limits are the combined contribution amounts between employee and employer funding. Be sure to let AccuPay know if you fund employee HSA’s outside of payroll, as this information must be reported on the employee W-2.
NOTE — It is always smart to include employee HSA contributions as an “includable benefit” in a written Section 125 cafeteria plan document, in order to save FICA/Medicare taxes.
FLEXIBLE SPENDING ACCOUNTS
The maximum amount an employee can contribute to a health flexible spending account (FSA) during 2025 is $3,300.Contributions to “dependent care” FSA accounts (for childcare) are limited to $5,000 in 2025 (OR $2,500 if “married filing separately” as your tax filing status.)
NOTE – Make sure you have a written Section 125 plan document if you sponsor FSA’s.
EMPLOYER-PAID PARKING
An employer may reimburse or directly pay employees for up to $325 per month during 2025 for parking as a non-taxable fringe benefit. The parking must be job-related and on or near the employer’s business location.
NOTE — “Downtown” employers may want to consider providing non-taxable parking benefits in lieu of taxable employee wages.
VEHICLE REIMBURSEMENTS
The 2025 business mileage tax deduction rate is 70 cents per mile.
An employer may choose to reimburse employees at the IRS rate for business miles driven on their personal vehicle, without the reimbursement being reported as taxable wages to the employee. Reimbursements above the IRS mileage rate must be treated as taxable wages.
NOTE — An employer is not required to use the IRS mileage rate for employee reimbursements, and therefore can reimburse more (taxable on excess) or less than the IRS rate.
HOW MUCH CAN STUDENTS EARN IN 2025?
Students/children of business owners could earn up to $15,000 in wages during 2025 without paying any Federal income tax. (This amount is equal to the standard deduction for single taxpayers in 2025.) As always, the wages paid to the owner’s children/grandchildren must be reasonable amounts based on the actual work completed. Maintain records to prove that wages paid to family members are “reasonable.”
Call your AccuPay Payroll Specialist at 317-885-7600 or email payroll@accupay.com with questions about your payroll or suggestions about how we can serve you better during 2025!
This PayDay is for educational purposes only and does not constitute tax and/or legal advice. Any links to external resources are for educational purposes only. AccuPay is not affiliated with nor receives any renumeration from any outside sources. Please consult with your tax and/or legal advisor before applying any suggestions made here or through external links.