IRS Releases 2026 Inflation-Adjusted Amounts for Healthcare FSAs, Commuter Benefits, and More

Health FSAs

On October 9, 2025, the IRS announced in Rev. Proc. 2025-32 the annual inflation adjustments for the 2026 tax year.

Included in this announcement, and of consequence to the employee benefits world, the IRS noted that the dollar limit (maximum) for employee contributions made on a pre-tax basis via salary reductions to health flexible spending accounts (FSAs) under a cafeteria plan will be modified for 2026. For plans beginning on or after January 1, 2026, the dollar limit cap is permitted to increase (by $100) from $3,300 to $3,400. For cafeteria plans that allow for the carryover of unused amounts, the maximum carryover amount is now permitted to increase by $20, now capped at $680 (for 2026 rollovers into 2027 plans).

As a result of this news, employers should ensure that their health FSAs are administered in such a way as to prohibit employees from exceeding $3,400 in pre-tax contributions and, if applicable, no more than $680 in carryovers (from 2026 into 2027). Although, it should of course be noted that employers have the right to impose a maximum limit on employee contributions to health FSAs that is lower than what the ACA and these indexed limits permit. For example, an employer could opt to cap employee contributions for 2026 at $2,500 instead but cannot set the limit at $3,600 in defiance of the ACA’s provisions.

Whatever amount the employer decides on should be communicated to employees during open enrollment and strictly adhered to. For employers that provide health FSA contributions, employees are permitted to elect up to the IRS limit and still receive the employer contribution in addition.

It should also be mentioned that the health FSA limit applies on an individual employee basis only. Therefore, even employees with spouses and dependents are still capped at $3,400 in maximum salary reductions for the year. Family members are eligible to enroll in their own separate health FSAs if they so choose, however.

Health Plan Limits		2024	2025	2026
Health FSA Contribution Limit		$3,200	$3,300	$3,400
Health FSA Carryover Limit		$640	$660	$680

Dependent Care Assistance Programs

This aspect of a client’s offering is not as straightforward as healthcare FSAs are.  Considering our previous guidance related to the One Big Beautiful Bill Act (OB3), and our webinar on that same topic, Congress permits DCAPs to increase from the prior $5,000 limit up to a $7,500 limit.  Our caution (warning) in that prior guidance and webinar was focused on groups that have not performed non-discrimination testing (or that have previously failed testing).  If that applies to your plans, then embracing the new limit might cause your plan to fail by a wider margin.  Please discuss this carefully with your AP Account Executive.

Commuter Benefits

Further noted in Rev. Proc. 2025-32, for taxable plan years beginning in 2026, the monthly limitation for commuter benefits will increase by $15 from $325 to $340. This applies to qualified parking and transit benefits alike.

Parking and Transit Limits (Per Month)	2024	2025	2026
Parking	$315	$325	$340
Transit	$315	$325	$340

Health Savings Accounts and High-Deductible Health Plans

Please see our previous guidance on the 2026 adjusted limits for HSAs and HDHPs, as addressed in Rev. Proc. 2025-19.

Highly Compensated Employees

On August 26, 2025, the IRS increased the threshold amount for determining who is considered a highly compensated employee (HCE) to $160,000.  This is up from the previous thresholds (2024’s was $155,000, and 2023’s was $150,000).  This amount fluctuates annually due to cost-of-living adjustments. Under the ownership test, an employee would also be considered an HCE if they were at least a 5% owner at any time during the current or preceding plan year. Sometime this November we might expect to see that HCE level increased again, and will update this post when the IRS releases that number (which will apply to 2026 plan years as they look back to see who was an HCE in 2025).  It should be noted that for non-discrimination testing (NDT) purposes, plans utilize the prior year’s wages and rules in making determinations.