The IRS recently issued Revenue Procedure 2025-32, providing certain cost-of-living adjustments for a wide variety of tax-related items, including health FSA contribution limits, transportation and parking benefits, qualified small employer health reimbursement arrangements (QSEHRAs), the small business tax credit, and other adjustments for tax year 2026. Those changes are outlined below.
- Health FSA: The annual limit on employee contributions to a health FSA will be $3,400 for plan years beginning in 2026 (up from $3,300 in 2025). In addition, the maximum carryover amount applicable for plans that permit the carryover of unused amounts is $680 (up from $660 in 2025).
- Dependent Care Assistance Program (DCAP): While DCAP limits are not annually adjusted for inflation, effective January 1, 2026, the One Big Beautiful Bill Act (OBBBA) increases the maximum annual DCAP tax exclusion from $5,000 to $7,500 (single filers or married filing jointly), and from $2,500 to $3,750 (married filing separately).
- Qualified Transportation Fringe Benefits: For 2026, the monthly amount that may be excluded from an employee's income for qualified parking increases to $340, as does the aggregate fringe benefit exclusion amount for transit passes (both up from $325 in 2024). The two limits are mutually exclusive.
- QSEHRAs: For 2026, the maximum number of reimbursements under a QSEHRA may not exceed $6,450 for self-only coverage and $13,100 for family coverage (up from $6,350 and $12,800 in 2025).
- Adoption Assistance Program: The maximum amount employees may exclude from their gross income under an employer-provided adoption assistance program for the adoption of a child will be $17,670 for 2026 (up from $17,280 in 2025). This exclusion begins to phase out for individuals with modified adjusted gross income greater than $265,080 and will be entirely phased out with a $305,080 modified adjusted gross income.
- Small Business Healthcare Tax Credit: For 2026, the average annual wage level at which the credit phases out for small employers is $34,100 (up from $33,300 in 2025).
Employers with limits that are changing – such as for health FSAs, transportation/commuter benefits, and adoption assistance – will need to determine whether their plans automatically apply the latest limits or must be amended (if desired) to recognize the changes. Any changes in limits should also be communicated to employees.
For further information, please ask your broker or consultant for a copy of the NFP publication Employee Benefits Annual Limits.
Read the full announcement: IRS Revenue Procedure 2025-32.