IRS Provides 2026 Limits for FSAs, Transport Fringe Benefits, Etc.

There were some questions regarding the ability of the U.S. Internal Revenue Service (IRS) to timely publish its annual October “Revenue Procedure,” given:

The current government shutdown;
The agency’s already short-staffed status from layoffs and resignations during the first half of 2025; and,
Its inclusion among the entities targeted in the current reduction-in-force initiative.

The IRS, however, managed to post the employer-anticipated document on Thursday, Oct. 9.

Revenue Procedure 2025-32 outlines tax-year 2026 annual inflation adjustments for more than 60 tax provisions, including the rate schedules. It also fills in the gaps from other recent government guidance and mandates, including the H.R. 1 law (also known as the One Big Beautiful Bill Act) and releases from the IRS (in May) and the Department of Health and Human Services (in June). Most pertinent for HR and total rewards (TR) professionals in the 36-page Revenue Procedure document are adjustments to:

Cafeteria plans — flexible spending accounts (FSAs)
Qualified transportation fringe benefits
Medical savings accounts (MSAs)
Smaller employers’ employee health insurance expenses
Qualified small employer health reimbursement arrangements (QSEHRAs)

Flexible Spending Accounts

The IRS placed the limit on voluntary employee salary reductions for contributions to health-related FSAs at $3,400 for 2026, compared to $3,300 for 2025 and $3,200 for 2024.

If an employer’s cafeteria plan permits an employee to carry over unused amounts from their account, the maximum amount is now $680 (versus $660 for 2025 and $640 for 2024).

Data from the Department of Labor’s Bureau of Labor Statistics shows that, in 2024, 47% of private-industry workers and 72% of government workers had access to a healthcare FSA.

Transportation Fringe Benefits

Beginning in 2026, the monthly fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass is capped at $340 (versus $325 in 2025). The monthly limit for qualified parking is also $340 (versus $325).

Employers with such benefits can provide, for specified employees, pre-tax salary deferrals or other benefits up to these limits, and the two categories can be combined if an employee has both types of expenses.

Medical Savings Accounts

The MSA adjustments impact business owners and current or former employees of small businesses that have a grandfathered ancestor of the more modern and widely used health savings account (HSA).

For self-only coverage, a “high-deductible health plan” (HDHP) is now defined as a plan with an annual deductible that is not less than $2,900 (versus $2,850 for 2025) and not more than $4,400 (versus $4,300), and under which the annual out-of-pocket maximum is $5,850 (versus $5,700).

For family coverage, an HDHP is now defined as a plan with an annual deductible that is not less than $5,850 (versus $5,700 for 2025) and not more than $8,750 (versus $8,550), and under which the annual out-of-pocket maximum is $10,700 (versus $10,500).

Employers’ Employee Health Insurance Expenses

A small employer’s annual health insurance expense may be offset by tax deductions and potentially the Small Business Health Care Tax Credit under the Affordable Care Act (ACA). The IRS provides an annual expense limit as a bar toward determining whether an employer has compensation that is low enough to qualify for the tax breaks. For 2026, the figure was placed at $34,100 (versus $33,300 for 2025).

Qualified Small Employer Health Reimbursement Arrangements

A QSEHRA is a health benefit plan that allows small businesses (those with less than 50 employees) to provide tax-free reimbursement for healthcare expenses like insurance premiums and out-of-pocket costs. The employer sets a fixed monthly amount that employees use to purchase their own individual health insurance plans or pay for medical expenses, then submit receipts for reimbursement.

The IRS placed the limit that a QSEHRA can pay toward individual premiums at $6,450 (versus $6,350 for 2025). For family coverage, the limit is $13,100 (versus $12,800).

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