2026 Health FSA Limit Increases to $3,400

The IRS has released Revenue Procedure 2025-32 confirming that for plan years beginning on or after January 1, 2026, the health FSA salary reduction contribution limit increases to $3,400.

The adjustment for 2026 represents a $100 increase to the $3,300 health FSA salary reduction contribution limit for 2025.

The contribution limit is set by the ACA (originally $2,500) and adjusts in $50 increments based on a complex cost-of-living calculation tied to consumer price index increases. The inflation levels in 2025 were sufficient to boost the health FSA salary reduction contribution limit by two $50 increments ($100 total) to $3,400 for plan years beginning on or after January 1, 2026.

What About the Carryover Limit into 2026?
The indexed carryover limit for plan years starting in calendar year 2026 to a new plan year starting in calendar year 2027 increases to $680. The carryover amount does not count toward the annual contribution limit.

The $500 carryover limit is indexed at 20% of the maximum health FSA salary reduction contribution for the plan year. The indexed carryover limit increases in multiples of $10. The adjustment to $680 (20% of the $3,400 limit) for amounts carried into 2027 represents a $20 increase to the $660 carryover limit in effect for amounts carried into 2026.

• Carryover Limit from a Plan Year Starting in 2025 to a Plan Year Beginning in 2026: $660

• Carryover Limit from a Plan Year Starting in 2026 to a Plan Year Beginning in 2027: $680

What About Employer Health FSA Contributions?
As a reminder, employer contributions (including non-cashable flex credits) generally cannot exceed $500 per plan year for the health FSA to maintain excepted benefit status (absent a dollar-for-dollar matching structure). Non-excepted health FSAs generally cannot comply with the ACA market reform mandates.

Therefore, in most cases the maximum health FSA amount available for plan years beginning on or after January 1, 2026 is limited to $3,400 (max employee salary contribution) + $500 (max employer contribution, if offered) = $3,900 (combined).

Also, keep in mind that the health FSA eligibility cannot be broader than the major medical plan eligibility to maintain excepted benefit status (as required by the ACA). In other words, employers cannot offer the health FSA to an employee who is not eligible for the major medical plan (regardless of enrollment).

• For more details: ACA and HIPAA Excepted Benefits

What About Short Plan Years?
The Section 125 cafeteria plan year generally needs to be a rolling 12-month period. However, a short plan year is permitted for a valid business purpose. This most commonly occurs when transitioning to a new plan year. In no case is a plan year longer than 12 months ever permitted.

IRS guidance confirms that the health FSA salary reduction contribution limit is prorated based on the number of months in the short plan year. For example, the maximum health FSA contribution limit for a short plan year from 4/1/26 – 12/31/26 would be 9/12 (three-quarters) of the limit. In that example, there would be a maximum salary reduction limit of $2,550 ($3,400 x (9/12)) for the nine-month short plan year.

• For more details: Short Plan Year Considerations

What About Employees Who Change Employers Mid-Year? Employees can contribute up to $3,400 to the health FSA with as many unrelated employers as they are employed by in 2026—even though the annual total may exceed $3,400. This is because the health FSA salary reduction contribution limit is merely a plan year maximum. It’s not an individual or calendar year limit.

• For more details: Health FSA Salary Reduction Limit for Mid-Year Hires

Other Notable 2026 Health and Welfare Employee Benefit Amounts

• Dependent Care FSA: The OBBB increases the dependent care FSA limit to $7,500 ($3,750 for married couples filing separately) in 2026. The new limit is not indexed for inflation. This marks the first dependent care FSA limit increase since its inception in 1986. Given that the limit has remained stable for forty years, employers should make the new higher limit an open enrollment communications priority. See How the One Big Beautiful Bill Affects Employee Benefits for more details.

• Commuter Benefits: The 2026 transit pass/vanpooling and parking limits are $340 per month (up from $325). As a reminder, commuter plans can now permit transit pass/vanpooling amounts to be rolled over to a parking benefit balance (and vice versa) per recent IRS guidance. See our Newfront Fringe Benefits for Employers Guide and Commuter Benefits Overview for more details.

• Adoption Assistance: The 2026 adoption assistance plan limit is $17,670 per child (up from $17,280). See our Newfront Fringe Benefits for Employers Guide for more details.

• Educational Assistance: The §127 qualified educational assistance limit remains at $5,250 for 2026. Starting in 2027, the OBBB indexes the limit to increase with inflation (fixed at $5,250 since 1979). Furthermore, the OBBB also makes permanent the ability to offer student loan repayment assistance within the qualified educational assistance program (was scheduled to sunset in 2026). See How the One Big Beautiful Bill Affects Employee Benefits for more details.

• HSA Limits: The IRS released the increased 2026 HSA limits back in May. The individual contribution limit is $4,400 (up from $4,300), and the family contribution limit is $8,750 (up from $8,550). See The 2026 HSA Contribution Limits and our Newfront Go All the Way with HSA Guide for more details. The OBBB also makes changes to the HSA rules related to telehealth, direct primary care (DPC), and bronze/catastrophic Exchange coverage. See How the One Big Beautiful Bill Affects Employee Benefits for more details.

• ACA Employer Mandate Affordability: The 2026 affordability safe harbor percentage increases to 9.96% (up from 9.02%). This sets the federal poverty line affordability safe harbor at a $129.89 maximum monthly employee-share of the premium for the lowest-cost plan option providing minimum value at the employee-only tier. See The ACA Affordability Determination in 2026 for more details.

• ACA Pay or Play Penalties: The annualized employer mandate pay or play penalties increase in 2026 to $3,340 (the Section 4980H(a) “A Penalty”) and $5,010 (the Section 4980H(b) “B Penalty”). See our Newfront ACA Employer Mandate & ACA Reporting Guide for more details.

• ACA Reporting: The deadline to furnish 2025 Forms 1095-C to employees is March 2, 2026. The Form 1094-C and copies of the Forms 1095-C (or 1094-B and 1095-B for self-insured non-ALEs) must be filed electronically with the IRS by March 31, 2026. See The ACA Reporting Requirements for more details.

• PCORI Fee: The IRS has not yet released the July 2026 PCORI fee for plan years that end on or after October 1, 2025, and before October 1, 2026 (including 2025 calendar plan years), but it is projected at $3.63 per covered life. See our full alert and our Newfront Compliance Considerations for Self-Insured Plans Guide for more details.

• San Francisco HCSO: The 2026 required health expenditure rates are $4.11 per hour payable for large employers (up from $3.85) and $2.74 per hour payable for mid-sized employers (up from $2.56). See our full alert and our Newfront San Francisco HCSO Guide for more details.

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).