HR leaders have some positive benefits news to share with employees in the midst of open enrollment: Workers can sock away more in their health flexible spending accounts (FSAs) next year.
For 2027, employees may contribute up to $3,500 to a health FSA, an increase from $3,400 for 2026, the IRS announced Nov. 5. The maximum amount an employer may permit employees to carry over into the following plan year will rise to $700, from $680 in 2026. Thresholds are adjusted annually for inflation and are usually announced around the time when employees are enrolling in benefits.
FSAs can be used on a wide range of medical expenses, including preventive exams, doctor visits, surgical procedures, and dental and vision care, along with many items that employees rely on every day, like over-the-counter medications and pain relief products, bandages, thermometers, menstrual care products, and baby health products. Unlike health savings accounts, however, they are use-it-or-lose-it, meaning that most account balances expire at the end of the year.
The IRS announced the health savings account (HSA) and high-deductible health plan figures back in May. The annual limit on HSA contributions for self-only coverage in 2027 will be $4,500, a 2.3% increase from the $4,400 limit in 2026. For family coverage, the HSA contribution limit will jump to $9,000 next year, up 2.9% from $8,750 in 2026.
In light of the 2027 limit announcements, experts say employers would be wise to promote HSAs and FSAs and encourage workers to increase their contributions as a helpful way to assist with medical costs. But HR leaders should make sure to explain the difference between the accounts, including about the FSA expiration clause. Although many account balances left at the end of the year are forfeited, some employers offer a grace period that allows employees extra time in the new year to use the prior year’s FSA funds or allow employees to carry over a limited amount into the next year.
Commuter, Adoption Limits Announced
The IRS also unveiled commuter benefit limits and adoption benefit limits. For tax year 2027, the monthly pretax commuter benefit limits for both parking and transit are increasing to $350 in 2027, up from $340 in 2026.
The changes, taking effect on Jan. 1, apply to combined participant and employer contributions for eligible parking and transit expenses. Commuter benefits are a pretax workplace program that allows employees to use a portion of their salary, before taxes are deducted, to pay for eligible commuting expenses. Eligible mass transit costs include fares for buses, subways, trains, ferries, and vanpools.
Meanwhile, the maximum adoption assistance amount for 2027 is rising to $18,250, up from $17,670 for 2026. For tax year 2027, the amount of credit that may be refundable is $5,280.
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