Ringing in 2025: Four Payroll limits to watch this new year

The holidays are upon us! Amidst the tinsel, mistletoe and shopping, there are also payroll and benefit topics to put on your task list. As we ring in the New Year, we made you a list to check twice, ensuring you and your organization start 2025 with a smooth and joyful transition.

Each year, contribution and tax limits change. As a best practice, the payroll and benefit departments in every organization should review and assess the impact on their individual processes and configurations.

Pension contribution limits

• 401k, 403b and 457 contributions will increase $500 for a maximum of $23,500.
• The over 50 catchups for these plans will remain the same as 2024 limits of $7,500.
• New for 1/1/25 Secure 2. has added an additional “Super” catch-up provision of $11,250 for those age 60-63.
• Verify these limits in Oracle by navigating to the calculation value definitions under the quick actions.

Social Security wage limit

• While the social security rate of 6.2% will not change, the covered compensation will change to $176,100 in 2025. This is an annual increase of $6,300.
• Medicare rate remains the same at 1.45% with no limit on covered compensation.
• Additional Medicare Tax rate remains at 0.9% for wages over $200,000 if filing single and $250,000 for joint filers.
• Oracle’s best practice is to test the new limits in a non-production environment in January.

Health Savings Account (HSA limits)

• Self-only election limit has increased to $4,300.
• The family election limit has increased to $8,550.
• Catch-up contributions for those employees who are 55 and older remain at $1,000 beyond the set limits for 2025.
• Oracle Cloud allows you to effectively track contributions to ensure alignment with requirements. When configuring these limit increases in Oracle benefits, this should be done in the HSA calculator common lookups, as well as in the HSA enrollment rate configuration to ensure contributions will track against maximums.
• If these rates were not known prior to the Open Enrollment period, in a non-production environment, test the best way to apply them by reprocessing the OE life event for those who enrolled during the period or by processing a post OE life event with a rate effective date of the beginning of the first pay period in the new year. Then apply the solution to your production environment. Reach out to Baker Tilly if you’d like guidance on how to ensure limit increases are being captured in enrollments already made.

Flexible Spending Accounts (FSA limits)

• Health Care Flexible Spending Account limits have increased to $3,300.
• Dependent Care Flexible Spending Account limits have not increased for 2025.
• If your plan offers a grace period, remind employees to spend their 2024 FSA funds by March 15, 2025, or by the end of your allowed grace period.
• When configuring these limits in Oracle, this should be done in the FSA calculator common lookups, as well as in the FSA enrollment rate configuration itself.

Baker Tilly recommends that an organization review the limits for custom pension plans with the governing body and make configuration changes appropriate to the new limits. Early testing and analysis for custom pension plans is a key factor in successful 2025 processing.

Should you have any questions or need assistance in navigating payroll year end, don’t hesitate to reach out to us at Baker Tilly! Since 2006, our Oracle practice has been transforming business and process for clients ranging from mid-market companies to Fortune 50 firms using Oracle Cloud’s enterprise solutions. Learn how we can help your business achieve similar success.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.