The IRS has released Revenue Procedure 2026-35, announcing 2027 limits for several pre-tax benefit plans. If you’re an employer setting up benefits for the coming plan year, open enrollment is the time to review these figures, update your systems, and make sure your employee communications are current.
The changes include higher limits for Healthcare Flexible Spending Accounts (FSAs), FSA carryovers, commuter benefits, and adoption assistance. The Dependent Daycare FSA limit remains unchanged.
2026 and 2027 limits at a glance
| Benefit | 2026 | 2027 |
|---|---|---|
| Healthcare FSA annual limit | $3,400 | $3,500 |
| Healthcare FSA carryover limit | $680 | $700 |
| Commuter benefit monthly limit: mass transit and parking | 2027 increase is $10 | $350 per month |
| Adoption Assistance maximum | $17,670 | $18,250 |
| Dependent Daycare FSA annual limit | $7,500 | $7,500 (unchanged) |
For a Dependent Daycare FSA, the limit is $3,750 for married individuals filing separately. The monthly commuter benefit increase applies to both mass transit and parking.
Healthcare FSA: a little more room for medical expenses
A Healthcare FSA is an employee benefit that lets workers set aside pre-tax dollars for eligible out-of-pocket medical costs. These can include copays, deductibles, prescriptions, and other qualified expenses. Because contributions are made pre-tax, they lower taxable income. The IRS sets a maximum annual contribution limit.
For plan years beginning on or after January 1, 2027, the limit increases to $3,500, up $100 from the 2026 maximum of $3,400. Employees may want to consider the higher cap when making their 2027 elections, especially if they expect eligible expenses during the plan year.
That decision still requires care: employees should consider their likely expenses and the rules of their employer’s plan before choosing an election amount.
How the carryover limit works
FSAs are generally subject to a “use-it-or-lose-it” rule, meaning unused funds may not remain available after the plan year ends. However, an employer’s plan may allow employees to carry over some unused Healthcare FSA funds into the next year. Carryover is an option employers configure, not a feature every plan necessarily offers.
For 2027, the maximum permitted carryover increases to $700, up $20 from the 2026 maximum of $680. This is a separate limit from the annual Healthcare FSA contribution cap. Check your plan documents or confirm with your benefits administrator whether your plan allows a carryover and how it is configured.
Commuter benefits: a higher monthly limit
Commuter benefits are pre-tax accounts employees can use for qualifying mass transit and parking costs related to commuting to work. Revenue Procedure 2026-35 increases the monthly limit by $10, to a maximum of $350 per month for both mass transit and parking.
The change may be especially relevant to employees with substantial commuting expenses. Employers should make sure their plan materials and administrative systems reflect the 2027 limit, and clearly explain which commuting expenses their program supports.
Adoption assistance: the maximum rises
Adoption assistance is an employer-paid or employer-arranged benefit that can help employees with adoption expenses. Eligible assistance may be offered pre-tax up to the applicable IRS limit.
For plans beginning on or after January 1, 2027, the maximum increases from $17,670 to $18,250. Employers offering adoption assistance should review their plan information and employee communications so the new maximum is reflected accurately.
Dependent Daycare FSA: the limit stays the same
A Dependent Daycare FSA is a pre-tax account for eligible childcare expenses. Its annual limit remains $7,500 for plan years beginning on or after January 1, 2027, or $3,750 for married individuals filing separately.
The limit did not increase for 2027. Families managing childcare costs may have hoped for a higher cap, but employers should communicate the unchanged amount plainly so employees can plan their elections with accurate information.
What employers should do now
Use open enrollment to prepare your 2027 benefits administration and employee communications. A practical checklist:
- Load the new limits into payroll and benefit systems for 2027 plan years beginning on or after January 1, 2027, where applicable.
- Update open enrollment materials and employee communications to show each changed limit, and make clear that the Dependent Daycare FSA limit is unchanged.
- Remind employees to review their 2027 elections. In particular, Healthcare FSA elections should reflect the new annual cap and each employee’s expected eligible expenses.
- Confirm your FSA carryover setting with your plan administrator. The IRS maximum is not a requirement that every employer’s plan allow a carryover.
- Review benefit-system configuration and communications together. Consistent figures across enrollment materials and administration can help reduce confusion during elections.
The new limits affect more than a table in an enrollment guide. They may require updates to plan administration, payroll settings, employee-facing materials, and the guidance employees use to make their elections. A timely review can help you spot discrepancies before enrollment windows close.
For additional support with employee enrollment and benefits administration, visit Total Benefit Solutions or read about onboarding employees with Total Benefit Solutions.
Get help reviewing your 2027 benefits
At Total Benefit Solutions, we help employers get benefit plans right, from plan design and compliance communications to helping employees understand their options. Our guidance is available at no cost to you.
Call (215) 355-2121 or visit www.totalbenefits.net to talk with us about preparing your 2027 benefits. We Work For Your Benefit
#EmployeeBenefits #FSA #OpenEnrollment #SmallBusiness #InsuranceAdvocacy