IRS releases 2027 health FSA limits: What employers need to know

Short answer: For plan years beginning in 2027, employees can contribute up to $3,500 to a health flexible spending account (FSA). That’s up $100 from 2026. The maximum carryover also rises to $700, up from $680.

On Nov. 5, 2026, the IRS released Revenue Procedure 2026-35, which sets the 2027 inflation-adjusted limits for health FSAs and other tax provisions.

Key takeaways

• The 2027 health FSA contribution limit is $3,500, up from $3,400 in 2026.
• The 2027 health FSA carryover limit is $700, up from $680 in 2026.
• Employers should make sure their plan limits for the upcoming plan year don’t exceed the new IRS limits.
• Employers should share the updated limits with employees during open enrollment.

2027 vs. 2026 health FSA limits at a glance

Limit	2026 plan years	2027 plan years	Change
Employee contribution limit	$3,400	$3,500	+$100
Maximum carryover	$680	$700	+$20

Sources: IRS Revenue Procedure 2026-35 (2027) and Revenue Procedure 2025-32 (2026)

What is the health FSA contribution limit for 2027?

The Affordable Care Act (ACA) caps how much employees can contribute to a health FSA through pre-tax payroll deductions. The cap started at $2,500 for plan years beginning on or after Jan. 1, 2013, and the IRS adjusts it for inflation each year. For 2027, it’s $3,500.

A few things to keep in mind:

• Employers can set a lower limit. Your plan can cap contributions below $3,500, but it can’t go above the IRS limit for that year.
• The limit applies only to employee pre-tax contributions. Employer contributions that employees can’t take as cash, such as matching contributions or flex credits, generally don’t count toward the limit.
• There’s one exception. If employees can choose to receive the employer contribution as cash or as a taxable benefit, it’s treated as an employee contribution and counts toward the $3,500 limit.

Does the health FSA limit apply per employee or per family?

Per employee. Each employee can contribute up to $3,500 for the 2027 plan year, even if family members also use the funds in that FSA.

Family members who are eligible for their own health FSA have their own separate limit. For example, a married couple with separate health FSAs can each contribute up to $3,500 for 2027, unless their employers set lower limits.

What is the health FSA carryover limit for 2027?

Health FSAs generally follow a “use-or-lose” rule. Money left at the end of the plan year, plus any grace period, is usually forfeited.

Instead of a grace period, employers can let participants carry over some unused funds into the next plan year. This amount started at $500 and is adjusted for inflation each year. Here’s how carryover works:

• 2027 limit: Up to $700 for plan years beginning in 2027 ($680 for plan years beginning in 2026).
• How it’s set: The maximum carryover equals 20% of that year’s contribution limit.
• How it can be used: Carried-over funds can pay for eligible medical expenses throughout the entire next plan year.
• Effect on the contribution limit: Carried-over funds don’t count toward the employee’s $3,500 contribution limit.

What should employers do now?

1. Review your plan limits. Confirm your health FSA contribution and carryover limits for the upcoming plan year don’t exceed the 2027 IRS limits.
2. Update payroll and plan materials. Make sure your enrollment guides, payroll systems, and plan documents show the new amounts.
3. Share the update with employees. Include the 2027 limits in your open enrollment communications so employees can plan their elections with confidence.

Frequently asked questions

What is the maximum health FSA contribution for 2027? $3,500 per employee for plan years beginning in 2027.

How much can employees carry over in a health FSA for 2027? Up to $700 for plan years beginning in 2027, if the plan allows carryover.

Do employer contributions count toward the health FSA limit? Generally, no. Employer contributions that employees can’t take as cash don’t count. If employees can take them as cash or as a taxable benefit, they do count.

Can a plan offer both a carryover and a grace period? No. Carryover is offered as an alternative to a grace period.

The Bright Side

New limits mean employees can set aside a little more pre-tax money for health care costs in 2027, and carry over a little more of what they don’t use. That’s good news for employee paychecks and for your benefits package.

The bright side for employers? You don’t have to keep track of every IRS update alone. Daybright Financial provides end-to-end Employee Benefits, Retirement, Compliance, and Individual Financial Planning solutions. We help you get plan limits right, keep enrollment on track, and share changes in a way employees understand. One partner. Less complexity. More confident employees.

Ready to get ready for 2027? Visit daybright.com to connect with our team.

This post is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. Content sourced from Zywave.

• Category: News
• Tag: Compliance, Employee Benefits