2027 FSA and Transportation Limit Updates

On November 5, 2026, the IRS released Revenue Procedure 2026-35, providing a list of inflationary adjustments made to certain employee health and welfare benefits (and other various items), including:

• Inflationary-adjusted healthcare FSA employee contribution and carryover limits, for plan years beginning on or after January 1, 2027.
• Inflationary-adjusted qualified transportation fringe benefit reimbursement program limits, for calendar year 2027.

The new limits for these benefits are as follows:

2027 Healthcare FSA Contribution Limit (for both general purpose and limited purpose healthcare FSAs)

• An employee may contribute a maximum of $3,500 to a healthcare FSA for plan years beginning on or after January 1, 2027 (up from $3,400 in 2026).
• An employee may carry over a maximum amount of $700 from a plan year beginning on or after January 1, 2027, to the following plan year (up from $680 in 2026).

2027 Commuter Transit/Qualified Parking Benefit Limits

• For calendar year 2027, an employee may receive up to $350 per month in reimbursements for qualified transportation expenses (e.g., commuter highway vehicle, transit passes) (up from $340 in 2026).
• For calendar year 2027, an employee may receive up to $350 per month in reimbursements for qualified parking expenses (up from $340 in 2026).

Dependent Care FSA Limit

As a reminder, the maximum amount of dependent care FSA (DCAP) benefits that may be received on a tax-free basis during a calendar year was adjusted with the passage of the One Big Beautiful Bill Act to $7,500 ($3,750 for married filing separately). This increased limit applies for taxable years beginning on or after January 1, 2026, and is effective until any future adjustments are made to that limit.

Conclusion

Plan sponsors offering healthcare FSAs or commuter transit/qualified parking benefits should review these inflationary adjustments and consider whether they plan to adopt these inflationary adjusted amounts in 2027. As a reminder, these annual adjustments are permissive, meaning plan sponsors are not required to adopt the above plan limit adjustments within their plan. If a plan sponsor chooses to adjust their employee contribution/reimbursement amounts in 2027, they should reflect such changes within their accompanying plan document(s) that describe the plan(s). Finally, if a plan sponsor has already communicated to plan participants and completed the open enrollment process based upon the current year’s (2026) contribution limits, they may want to consider adopting these inflationary adjustment amounts at the next open enrollment period.

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