Health FSA: employee limit rises to $3,500 for 2027

Employees can put up to $3,500 into a health FSA through pre-tax salary reduction for plan years that start in 2027, up from $3,400.

RJ Ryan Joyce 2 min read

Compliance Watch · Issue 05

Status: Effective Jan 1, 2027

Jurisdiction: Federal · Topic: Cafeteria plans

Source: IRS, November 5, 2026

Back to the issue: all 3 updates in Issue 05

New limit starts
January 1, 2027
For plan years that begin on or after this date.

What changed

Employees can put up to $3,500 into a health FSA through pre-tax salary reduction for plan years that start in 2027, up from $3,400. A plan that allows carryover can carry more into the next year.

2027 vs. 2026

2027

Health FSA, employee limit
$3,500
Health FSA carryover
$700
Dependent care FSA
$7,500

2026

Health FSA, employee limit
$3,400
Health FSA carryover
$680
Dependent care FSA
$7,500

The math where a plan allows carryover

$3,500the most an employee can elect for 2027
+ $680the most that can carry over from 2026
$4,180the most available to spend in 2027

Compliance note

The $3,500 is a ceiling on employee salary reductions. A plan can set a lower limit, and carryover applies only if the plan document allows it.

Who this affects

Employers with a Section 125 cafeteria plan that includes a health FSA, and the employees who elect it.

Exceptions that matter:

  • The new limit applies to plan years that start in 2027; a plan year that starts later in 2027 keeps the 2026 limit until then.
  • The dependent care FSA limit is set by law and is not indexed: $7,500 a household, or $3,750 if married filing separately.

What to do

Check the limit and carryover your plan document allows, then set the 2027 election limit before open enrollment closes.

Employer checklist

1
Read your cafeteria plan document for its health FSA limit and whether it allows carryover.
2
Set the 2027 election limit in your enrollment materials before open enrollment closes.
3
Update the pre-tax deduction limit in payroll before the plan year starts.

Primary source: IRS, November 5, 2026. Part of Compliance Watch, Issue 05 (November 13, 2026). Last reviewed November 13, 2026.

Questions employers ask

When does this take effect?
It takes effect January 1, 2027. Until then the current rules apply. Employers nationwide should check the official notice for the exact scope: IRS, November 5, 2026.
Can an employee change a health FSA election during the year?
Generally not. The election is set at open enrollment and can change only after a qualifying life event, if the plan allows it.
What happens to money left at the end of the year?
It is forfeited unless the plan allows a carryover, up to $700 from 2027 into 2028, or a grace period. A plan can offer one or the other, not both.

Open enrollment, FSA elections and payroll

For its clients, VertiSource HR does the work behind open enrollment and the payroll changes that follow it, and makes sure that work is done on time. See employee benefits and payroll services.

Ask us about a federal rule All 3 updates in Issue 05

General information from VertiSource HR, not legal or tax advice. How a rule applies depends on your company and your state. Check with us or your attorney before acting.

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