Employee Benefits
Legal Alert: IRS Adjusts Health Flexible Spending Account and Other Benefit Limits for 2026
October 10, 2025
The Internal Revenue Service (IRS) recently released Revenue Procedure 2025-32, which increases the health flexible spending account (FSA) salary reduction contribution limit to $3,400 for plan years beginning in 2026, an increase of $100 from 2025. Thus, for health FSAs with a carryover feature, the maximum carryover amount is $680 (20% of the $3,400 salary reduction limit) for plan years beginning in 2026. When carrying over funds from 2025 to 2026, 20% of the $3,300 salary reduction limit for 2025 is $660.
The Revenue Procedure also contains the cost-of-living adjustments that apply to dollar limitations in certain other sections of the Internal Revenue Code.
Qualified Commuter Parking and Mass Transit Pass Monthly Limit
For 2026, the monthly limits for qualified parking and mass transit are increased to $340 each, an increase of $15 from 2025.
Adoption Assistance Tax Credit Increase
For 2026, the credit allowed for adoption of a child is $17,670 (up $390 from 2025). The credit begins to phase out for taxpayers with modified adjusted gross income in excess of $265,080 (up $5,890 from 2025) and is completely phased out for taxpayers with modified adjusted gross income of $305,080 or more (up $5,890 from 2025).
Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) Increase
For 2026, reimbursements under a QSEHRA cannot exceed $6,450 (single) / $13,100 (family), an increase of $100 (single) / $300 (family) from 2025.
Reminder: 2026 HSA Contribution Limits and HDHP Deductible and Out-of-Pocket Limits
Earlier this year, in Rev. Proc. 2025-19, the IRS announced the inflation adjusted amounts for HSAs and high deductible health plans (HDHPs).
| 2026 (single/family) | 2025 (single/family) |
Annual HSA Contribution Limit | $4,400 / $8,750 | $4,300 / $8,550 |
Minimum Annual HDHP Deductible | $1,700 / $3,400 | $1,650 / $3,300 |
Maximum Out-of-Pocket for HDHP | $8,500 / $17,000 | $8,300 / $16,600 |
The ACA’s out-of-pocket limits for in-network essential health benefits have also been announced and have increased for 2026. Note that all non-grandfathered group health plans must contain an embedded individual out-of-pocket limit if the family out-of-pocket limit is above $10,600 (2026 plan years). Exceptions to the ACA’s out-of-pocket limit rule are available for certain small group plans eligible for transition relief (referred to as “Grandmothered” plans). While historically CMS has renewed the transition relief for Grandmothered plans each year, it announced in March 2022 that the transition relief will remain in effect until it announces that all such coverage must come into compliance with the specified requirements.
| 2026 (single/family) | 2025 (single/family) |
ACA Maximum Out-of-Pocket | $10,600 / $21,200 | $9,200 / $18,400 |
ACA Reporting Penalties (Forms 1094-B, 1095-B, 1094-C, 1095-C)
The table below describes late filing penalties for ACA reporting. The 2027 penalty is for returns filed in 2027 for calendar year 2026, and the 2026 penalty is for returns filed in 2026 for calendar year 2025. Note that failure to issue a Form 1095-C when required may result in two penalties, as the IRS and the employee are each entitled to receive a copy.
Penalty Description | 2027 Penalty | 2026 Penalty |
Failure to file an information return or provide a payee statement | $340 for each return with respect to which a failure occurs | $340 for each return with respect to which a failure occurs |
Annual penalty limit for non-willful failures | $4,191,500 | $4,098,500 |
Lower limit for entities with gross receipts not exceeding $5M | $1,397,000 | $1,366,000 |
Failures corrected within 30 days of required filing date | $60 | $60 |
Annual penalty limit when corrected within 30 days | $698,500 | $683,000 |
Lower limit for entities with gross receipts not exceeding $5M when corrected within 30 days | $244,500 | $239,000 |
Failures corrected by August 1 | $130 | $130 |
Annual penalty limit when corrected by August 1 | $2,095,500 | $2,049,000 |
Lower limit for entities with gross receipts not exceeding $5M when corrected by August 1 | $698,500 | $683,000 |
Failure to file an information return or provide a payee statement due to intentional disregard | $690 for each return with respect to which a failure occurs (no cap) | $680 for each return with respect to which a failure occurs (no cap) |
About the Author. This alert was prepared for Alera Group by Barrow Lent LLP, a national law firm with recognized experts on ERISA and the Affordable Care Act. Contact Stacy Barrow or Nicole Quinn-Gato at sbarrow@marbarlaw.com or nquinngato@marbarlaw.com.
The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers, or our clients. This is not legal advice. No client-lawyer relationship between you and our lawyers is or may be created by your use of this information. Rather, the content is intended as a general overview of the subject matter covered. This agency and Barrow Lent LLP are not obligated to provide updates on the information presented herein. Those reading this alert are encouraged to seek direct counsel on legal questions.
© 2025 Barrow Lent LLP. All Rights Reserved.
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