IRS Updates Health FSA Limits for 2027

Important Changes Employers Need to Know

The Internal Revenue Service (IRS) has announced updated contribution limits for Health Flexible Spending Accounts (FSAs) for the 2027 plan year. According to IRS News Release IR-2026-133, employees will be able to contribute up to $3,500 in pre-tax dollars to their health FSAs beginning January 1, 2027. This represents a $100 increase from the 2026 limit of $3,400.

What Is Changing?

Health FSA contribution limits are adjusted annually for inflation. Since the Affordable Care Act (ACA) first established an annual employee contribution cap of $2,500 in 2013, the IRS has periodically increased the limit to reflect rising costs. For 2027, the new maximum employee contribution will be $3,500.

In addition, employers that offer FSA carryover provisions may allow employees to carry over up to $700 of unused funds into the following plan year, an increase from the 2026 carryover limit of $680.

Employer Action Items

To maintain compliance and help employees maximize their benefits, employers should:

• Update open enrollment materials to reflect the new 2027 Health FSA contribution limit of $3,500.

• Review payroll and benefits administration systems to ensure employee elections do not exceed the allowable maximum.

• Communicate any plan-specific contribution or carryover limits if they are lower than the IRS maximums.

Key Reminders

• The annual limit applies only to employees' pre-tax salary reduction contributions.

• Employer contributions generally do not count toward the limit unless employees can choose to receive those amounts as cash or another taxable benefit.

• Each employee is eligible for the full $3,500 contribution limit regardless of family size.

• If both spouses participate in separate employer-sponsored FSAs, each spouse may contribute up to the maximum allowable amount individually.

Bottom Line

The increased Health FSA contribution and carryover limits provide employees with greater opportunities to save for qualified medical expenses using pre-tax dollars. Employers should review plan documents, enrollment communications, and administrative processes now to ensure a smooth transition to the 2027 limits and continued compliance with IRS requirements.

For additional details, see IRS News Release IR-2026-133.