2026 FSA Contribution Limit: $3,400 (Up From $3,300)

What Is the 2026 FSA Contribution Limit?

The 2026 Health FSA contribution limit is $3,400 per employee, up from $3,300 in 2025, set by IRS Rev. Proc. 2025-32. Plans that offer a carryover can roll over up to $680 of unused funds into the next plan year. A $100 bump may look small, but it compounds across your workforce and adds pre-tax savings for every participating employee.

For employers offering a Section 125 cafeteria plan, employees can now set aside more before taxes for qualified medical expenses — copays, prescriptions, dental, vision, and hundreds of other IRS-eligible expenses.

How Much Does an FSA Save?

Every dollar an employee contributes to a Health FSA avoids their 7.65% FICA tax plus their federal income tax (and state income tax in most states). The exact savings depends on the employee's bracket: someone in the 12% federal bracket saves about 19.65% on each pre-tax dollar, and someone in the 22% bracket saves about 29.65%.

On the employer side, the savings are the 7.65% FICA (IRC 3111) on every pre-tax dollar. On a full $3,400 election, that is about $260 in payroll-tax savings per participating employee per year — across 40 participants, roughly $10,400.

What Should HR Teams Do Now?

If your plan year matches the calendar year, the $3,400 limit is already in effect. To make the most of it:

• Update enrollment materials to the new $3,400 maximum. Employees who elected less may want to increase their contributions.
• Send a reminder email about the increase. Many employees set their FSA and forget it, so a nudge can lift participation.
• Educate new hires during onboarding on what an FSA covers. The top reason employees skip FSAs is not understanding how they work.
• Review the Dependent Care FSA limit separately — it rose to $7,500 for 2026 ($3,750 for married filing separately) under the One Big Beautiful Bill Act, the first increase since 1986. Download the 2026 DCFSA Employer Guide (PDF) for the full math by company size, the plan-amendment checklist, and the nondiscrimination-test trap at the higher limit.

Do You Need a Section 125 Plan First?

Yes. Offering a Health FSA requires a Section 125 cafeteria plan. Setup timing depends on your payroll provider and plan design, so a licensed professional confirms the specifics for your business. The plan document, nondiscrimination testing, employee enrollment, and payroll integration live with the licensed pro and TPA, not on your desk.