On Oct. 9, 2025, the IRS released Revenue Procedure 2025-32 (Rev. Proc. 25-32), which includes the 2026 inflation-adjusted limit on employee salary reduction contributions to health flexible spending accounts (FSAs). For plan years beginning in 2026, the adjusted dollar limit on employees’ pre-tax contributions to health FSAs increases to $3,400. This is a $100 increase from the 2025 health FSA limit of $3,300.
The Affordable Care Act (ACA) imposes a dollar limit on employees’ salary reduction contributions to health FSAs. This limit started at $2,500 for plan years beginning on or after Jan. 1, 2013, and has been adjusted for inflation for subsequent plan years. Employers should ensure their health FSAs will not allow employees to make pre-tax contributions over $3,400 for the 2026 plan year. Employers can impose a lower limit on employees’ pre-tax contributions to a health FSA.
Employers should confirm that their health FSA contribution limit is included in the plan’s documents and communicate it to employees at enrollment time.
Pre-tax Contributions
The ACA’s dollar limit applies only to employees’ pre-tax contributions to a health FSA. Nonelective employer contributions to a health FSA (for example, matching contributions or flex credits) generally do not count toward the health FSA contribution limit. However, if employees may elect to receive the employer contributions in cash or as a taxable benefit, then the contributions must be treated as salary reductions and counted toward the health FSA contribution limit.
Per-employee Limit
The health FSA limit applies on an employee-by-employee basis. Each employee may only elect up to $3,400 in salary reductions in 2026, regardless of whether they have family members who benefit from the funds in that FSA. However, each family member eligible to participate in their own health FSA has a separate limit. For example, a married couple who have their own health FSAs can both make salary reductions of up to $3,400 for 2026, subject to any lower employer limits.
Health FSA Carryovers
As an exception to the use-or-lose rule, employers with health FSAs may allow employees to carry over a certain amount of funds remaining at the end of a plan year to reimburse eligible expenses incurred in the plan year immediately following. The maximum carryover amount is adjusted annually for inflation. For 2026, Rev. Proc. 25-32 increases the maximum carryover limit to $680 (from $660 for 2025 plan years). Employers that allow carryovers may impose their own limit that is lower than the maximum carryover limit.
Provided by Ollis/Akers/Arney Insurance & Business Advisors
This Legal Update 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. © 2025 Zywave, Inc. All rights reserved.
