FSA Limits 2026: New Contribution Max Explained

The IRS just raised health FSA limits again. If you run a Houston small or mid-sized business, you need the new numbers before open enrollment.

For plan years beginning in 2026, employees can put up to $3,400 into a health flexible spending account (FSA) through salary reduction. That is $100 more than the 2025 max of $3,300.

This guide walks you through the 2026 health FSA contribution max, carryover rules, grace-period rules, and dependent care limits. You will also see what stays the same for employers.

Here’s what changed—and what to check on your plan document.

What Are the Health FSA Limits for 2026?

For taxable years beginning in 2026, the health FSA salary-reduction max is $3,400.

Revenue Procedure 2025-32 sets that dollar limit under section 125(i). So if your plan year starts in 2026, build elections around $3,400—not last year’s figure.

For taxable years beginning in 2025, the IRS dollar limit on health FSA salary reductions is $3,300. Revenue Procedure 2024-40 sets that ceiling.

For taxable years beginning in 2025, if a cafeteria plan permits carryover of unused health FSA amounts, the maximum carryover amount is $660. That older pair still matters for 2025 plan years that are still running.

Plan year beginning Health FSA salary reduction max Max carryover (if plan permits) 2025 $3,300 $660 2026 $3,400 $680

Use the row that matches your plan year. Mixing years is a common compliance slip.

In plain terms, the employee salary-reduction max moved up $100. Carryover moved up $20 when the plan allows it.

That small bump still changes enrollment forms, payroll caps, and employee communications. Update those tools before people elect.

How Do FSA Contribution Max Rules Work for Employees?

Employees fund a health FSA with pre-tax payroll deductions—up to the IRS salary-reduction limit for that year.

The IRS healthcare FSA reminder for 2025 is clear. An employee who chooses to participate in an FSA can contribute up to $3,300 through payroll deductions during the 2025 plan year.

Amounts contributed are not subject to federal income tax, Social Security tax, or Medicare tax. That tax treatment is a big reason teams ask for FSAs.

Per the 2026 General Instructions for Forms W-2 and W-3, here is the rule.

For 2026, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $3,400. The salary reduction contribution limitation of $3,400 does not include any amount carried over from a previous year.

So a valid carryover sits on top of a fresh election. It does not eat into the new-year salary-reduction max.

What Is the FSA Carryover Limit for 2026?

For taxable years beginning in 2026, if a cafeteria plan permits the carryover of unused health FSA amounts, the maximum carryover amount is $680.

That figure comes from Revenue Procedure 2025-32. For 2025, the same rule set a $660 carryover max in Revenue Procedure 2024-40.

Per the IRS healthcare FSA reminder for 2025, for FSAs that permit carryover, the maximum carryover amount to 2025 is $660. That carryover does not affect the maximum amount of salary reduction contributions that can be made.

Still, carryover is optional. Your plan document must allow it. If it does not, unused funds follow your use-it-or-lose-it design.

Can You Offer Both a Carryover and a Grace Period?

No. For health FSAs, carryover and a grace period are mutually exclusive.

IRS Notice 2013-71 says a plan that adopts carryover may not also provide a grace period for health FSAs. You choose one feature—or neither—not both.

A grace period is different from a carryover.

Per IRS Notice 2013-71, a health FSA grace period lasts up to two months and 15 days. It starts right after the plan year ends.

During that period, a participant may use amounts remaining from the previous plan year. Those dollars can pay certain qualified benefit expenses incurred during that period.

IRS Notice 2005-42 adds the hard stop. The grace period must not run past the fifteenth day of the third calendar month after the prior plan year ends. That is the 2½-month rule.

For Houston employers, the practical step is simple. Confirm which feature your document uses before you message staff about leftover balances.

Who Is Eligible for a Health FSA?

Health FSAs are for eligible employees of companies that offer the benefit. Self-employed individuals are not eligible.

That line comes straight from the IRS healthcare FSA reminder. If you are a sole proprietor without W-2 staff, a health FSA is not your account.

Employees still need to elect every plan year. Unused rules and new limits do not roll forward as an automatic election.

If the plan allows, the employer may also contribute to an employee’s FSA. The IRS reminder states that clearly. It does not set a separate $500 “employer-only” statutory max in that guidance.

Keep employer funding rules in the plan document and your cafeteria-plan design. Do not invent a fixed IRS employer cap that is not there.

For Texas SMBs, that usually means reviewing how you fund the account before you announce a match or seed amount.

What Is the Dependent Care FSA Limit After 2025?

Dependent care assistance is separate from the health FSA salary-reduction limit.

Under 26 U.S.C. § 129, the exclusion for dependent care assistance may not exceed $7,500 for a taxable year. For a married individual filing a separate return, the cap is $3,750.

The same statute’s effective-date note says the Public Law 119-21 amendment applies to taxable years beginning after December 31, 2025. So treat the higher exclusion as a 2026-and-after tax-year rule, not a mid-2025 surprise.

Internal Revenue Bulletin 2026-37 repeats the same annual exclusion limits: $7,500, or $3,750 for married filing separately.

That is a big planning change for working parents on your team. Still, it sits under a different code section than health FSA salary reductions.

When you refresh open-enrollment materials, label health FSA and dependent care amounts as different benefits. Mixing them confuses elections and W-2 reporting.

Also watch filing status. Married filing separately uses the lower $3,750 figure under the statute.

What Should Houston Employers Check Before Open Enrollment?

Use this short checklist before you lock 2026 elections.

• Update election systems and SPD language to the $3,400 health FSA max.
• Confirm whether your plan uses carryover ($680 max) or a grace period—not both.
• Separate dependent care communications using the $7,500 / $3,750 figures for tax years after 2025.
• Remind staff that self-employed owners are not eligible for a health FSA.
• Align payroll and W-2 reporting with the salary-reduction limit that excludes carryover.

These steps help you evaluate FSA design against current IRS figures. They also reduce last-minute corrections during enrollment.

Next, walk the numbers with your broker or TPA. A short pre-enrollment review is cheaper than fixing bad elections mid-year.

If your plan year is not calendar-year, map each limit to the correct taxable year or plan year. That timing detail is where many packets go stale.

Key Takeaways on FSA Limits

• Health FSA salary reduction max for plan years beginning in 2026: $3,400.
• Carryover max if the plan permits for 2026: $680.
• Carryover and grace period cannot both be offered on a health FSA.
• Grace period, when used, lasts up to 2½ months after plan year-end.
• Dependent care assistance exclusion: $7,500 ($3,750 MFS) for taxable years beginning after December 31, 2025.
• Self-employed individuals are not eligible for a health FSA.
• Employers may contribute if the plan allows—follow the plan document, not an invented IRS employer-only cap.

Ready to Align Your FSA Plan for 2026?

Current FSA limits should drive your next enrollment packet—not last year’s flyer.

Need a second set of eyes on plan language or carryover vs grace period? Primary Care Insurance Solutions can walk through the options with you. We help Houston and Texas employers keep benefits clear and easy to explain.