IRS Announces Key Updates To Health FSA Limits & Qualified Transportation Limits For Plan Year 2026
- SiekmannCo
- Oct 22
- 2 min read
The Internal Revenue Service (IRS) has issued Revenue Procedure 2025-32, outlining inflation-adjusted limits for various employee benefits effective for plan year 2026. These adjustments reflect cost-of-living increases and provide employers and employees with greater flexibility in tax-advantaged benefits programs. Key changes include increases to Health FSA limits and qualified transportation limits, enabling higher pre-tax contributions and reimbursements.
Health FSA Limits For Plan Year 2026
Health Flexible Spending Accounts (FSAs) allow employees to set aside pre-tax dollars to reimburse qualified medical expenses. Under the Affordable Care Act (ACA), these accounts are subject to an annual dollar limitation on employee salary reduction contributions.
Key Health FSA Limits
Contribution Limit: For plan years beginning in 2026, the maximum employee pre-tax contribution to a health FSA rises to $3,400, a $100 increase from the 2025 limit of $3,300.
Carryover Provision: As an optional exception to the traditional "use-or-lose" rule, employers may permit employees to carry over unused funds. The maximum carryover amount for 2026 increases to $680 (20% of the $3,400 contribution limit), up from $660 in 2025.
These limits apply on an individual basis. For example:
Each eligible employee (including spouses with separate employer-sponsored plans) may contribute up to the full $3,400 limit.
Employers may impose a lower contribution limit if desired, but cannot exceed the IRS maximum.
Employers should review plan documents, update payroll systems, and communicate these changes during open enrollment to ensure compliance and maximize employee benefits.
Qualified Transportation Limits For 2026
Qualified transportation fringe benefits allow employers to provide tax-free reimbursements or pre-tax salary deferrals for certain commuting expenses under Internal Revenue Code Section 132(f). Both employee contributions and employer-provided benefits count toward the monthly exclusions.
2026 Qualified Transportation Limits
Commuter Highway Vehicle & Transit Passes: The combined monthly exclusion limit increases to $340, up from $325 in 2025.
Qualified Parking: The monthly exclusion limit for parking near the workplace or commuter hubs also rises to $340, up from $325 in 2025.
These limits apply separately, meaning employees could potentially exclude up to $340 for transit-related expenses and an additional $340 for parking each month, depending on plan design.
Employers offering these benefits should coordinate with administrators to apply the updated limits starting January 1, 2026, for calendar-year plans.
Implications For Employers & Employees
These adjustments, detailed in IRS Revenue Procedure 2025-32 released on Oct. 9, 2025, help offset rising costs in healthcare and commuting. Employers must:
Amend plan documents if necessary to adopt the higher limits.
Update communication materials and enrollment platforms.
Ensure compliance to avoid taxable treatment of excess contributions.
By leveraging these increased Health FSA limits and qualified transportation limits for plan year 2026, organizations can enhance their benefits packages, supporting employee financial wellness and retention.
For expert guidance on implementing these changes, optimizing your retirement plans, or designing comprehensive employee benefits programs, contact The Siekmann Company today. Our team specializes in retirement and employee benefits administration for small to mid-sized businesses, ensuring compliant and cost-effective solutions tailored to your needs.
