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2026 Health FSA & Qualified Transportation Limits

In Revenue Procedure 2025-32, the IRS sets forth a variety of 2026 adjusted tax limits. Among other things, the notice indicates that employee contribution limits toward health flexible spending arrangements (health FSAs) and qualified transportation fringe benefits will increase for 2026.

• The limit on annual employee contributions toward health FSAs for 2026 plan years is $3,400 (increased from $3,300 in 2025), with the ability to carryover up to $680 (increased from $660 in 2025).
• The limit on monthly contributions toward qualified transportation and parking benefits for 2026 is $340 (increased from $325 in 2025).

Health Flexible Spending Arrangements (FSAs)

The health FSA salary reduction limit applies on a plan year basis, not necessarily on a calendar year basis. For example, a health FSA with an April – March plan year could allow employees to elect to contribute up to $3,300 for the April 2025 – March 2026 plan year and up to $3,400 for the April 2026 – March 2027 plan year. The 2026 annual contribution limit of $3,400 for health FSAs applies to employee salary reductions, and the same limit applies for general-purpose and limited-purpose health FSAs. Employer contributions are not subject to the limit but are subject to different restrictions under healthcare reform rules.

NOTE:  Annual dependent care assistance program (DCAP) reimbursement limits are set by statute and not subject to inflationary adjustments. However, this amount beginning in 2026 was adjusted by legislation to be $7,500 (up from $5,000 previously) for single taxpayers and married couples filing jointly, or $3,750 for married people filing separately.

Qualified Transportation Benefits (Transportation & Parking)

Instead of annual contribution limits, qualified transportation fringe benefits are subject to monthly limits. The 2026 monthly limit of $340 applies separately to:

• qualified parking; and
• the combination of commuter highway vehicles and transit passes.

An employee could elect up to $340/month for each (or could elect up to $680/month to use toward a combination of transportation and parking benefits). For qualified transportation fringe benefits, both employee and employer contributions count toward the monthly limit.

Just like contribution limits apply monthly, employees generally have an opportunity to change elections monthly (or even more frequently). Unused contributions cannot be cashed out, but they can be used in subsequent months. So, if an employee fails to use all amounts contributed for qualified transportation or parking benefits and then terminates coverage, the leftover amounts would be forfeited. But if the employee continues participation in the plan, and perhaps reduces contributions for future months, unused amounts from one month may be used for coverage in later months (up to $340 in any given month).

While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting, or other professional advice or services. Readers should always seek professional advice before entering into any commitments.