IRS releases 2026 FSA limits and other key benefit adjustments: what HR leaders need to know

Staying compliant with annual IRS updates is a critical part of benefits administration. The IRS recently issued Revenue Procedure 2025-32, which outlines new inflation adjustments for several employee benefit programs effective for the 2026 plan year.

Below, we break down what’s changing and what HR and benefits teams should do next to stay compliant.

Understanding the 2026 IRS updates

Each year, the IRS updates contribution limits and thresholds for tax-advantaged benefits like FSAs, QSEHRAs, and commuter benefits. While these adjustments might seem routine, they have meaningful implications for HR and benefits teams managing payroll systems, plan documents, and employee communications.

As organizations expand their benefit offerings and employees become more aware of pre-tax savings opportunities, even small IRS updates can affect employee experience and administrative accuracy. Staying ahead of these changes ensures your team avoids penalties, maintains compliance, and builds trust through transparent communication.

Here’s what’s being updated for 2026:

Health FSA contribution limits increase for 2026

For plan years beginning in 2026, the health flexible spending arrangement (FSA) contribution limit will rise to $3,400, up from $3,300 in 2025.

If your plan allows employees to carry over unused funds, the maximum carryover amount will increase to $680 (up from $660 in 2025).

These adjustments mean HR teams will need to update plan documents and employee communications to reflect the new limits ahead of open enrollment.

Qualified transportation and parking benefits see an increase

For 2026, the monthly limit for both qualified transportation and qualified parking benefits increases to $340, up $15 from the 2025 limit of $325 per month.

Employers offering commuter benefits should ensure payroll systems and benefit administration platforms are updated accordingly.

QSEHRA limits rise for small employers

Small employers offering Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) will also see an increase in limits.

For 2026, QSEHRAs must cap payments and reimbursements at $6,450 for self-only coverage and $13,100 for family coverage.

Adoption assistance programs get a higher exclusion limit

The maximum amount excludable from an employee’s gross income for adoption assistance will rise to $17,670 in 2026.

This exclusion begins to phase out for individuals with a modified adjusted gross income (MAGI) over $265,080 and phases out completely at $305,080.

Small employer health insurance credit adjustments

For 2026, the average annual wage level at which the small employer health insurance credit begins to phase out increases to $34,100, up from $33,300 in 2025.

This change affects employers with more than 10 full-time equivalent employees who claim the credit.

ACA information return penalties remain the same

There are no changes to ACA information return penalties for the 2026 calendar year.

Failure to file returns in 2027 for calendar year 2026 will result in a penalty of $340 per return, or $60 if corrected within 30 days, and $130 if corrected before August 1.

Employers must remember that both the IRS and employees receive copies of Form 1095-B or 1095-C, meaning penalties can apply twice for each failure.

What HR Teams should do next

Employers offering any of these benefits — FSAs, commuter benefits, QSEHRAs, adoption assistance, or small business health credits — must ensure the new 2026 limits are reflected in plan documents and employee communications before the start of the plan year.

The most effective HR teams use these annual IRS updates as a checkpoint to review their entire compliance posture — not just to make updates, but to confirm accuracy across payroll systems, benefit materials, and vendor setups.

Here’s how leading HR teams stay compliant year-round:

• Audit plan documents (like SPDs and employee handbooks) to ensure they reflect the latest IRS contribution limits and carryover rules.
• Coordinate with payroll and benefits vendors to update contribution caps, reimbursement amounts, and commuter benefit thresholds.
• Review employee communications and enrollment materials to confirm they align with updated plan details.
• Double-check ACA reporting processes to ensure Forms 1095-B and 1095-C are filed correctly and on time.
• Keep a compliance checklist and record of annual updates to simplify audits and demonstrate diligence if questions arise.

By taking these proactive steps now, HR leaders can prevent costly errors, reduce administrative headaches during open enrollment, and show employees that their benefits are being managed accurately and transparently.

Staying ahead of compliance changes

Annual IRS updates are just one piece of the compliance puzzle. By partnering with a modern employee benefits advisor, HR teams can stay ahead of regulatory shifts, avoid costly penalties, and ensure employees continue to receive accurate, compliant benefits information.