IRS Cost-of-living adjustments Announced for 2027 – FSAs and More

Contribution limits were announced by the IRS on November 5, 2026. These 2027 cost-of-living adjustments (COLAs) affect contribution limits for various tax-advantaged accounts in Rev. Proc. 2026-35, including Flexible Spending Accounts (FSAs).

2027 Benefit Limits at a Glance:

• Health Care FSA: maximum contribution limit is $3,500
• Transportation Plans: transit and parking allowances are both $350
• Adoption Assistance program maximum excludable amount $18,250
• Adoption Tax Credit is $18,250 per eligible child
• HSAs: Individual contribution limit is $4,500 & the Family contribution limit is $9,000

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What are Cost-of-Living Adjustments?

Cost-of-living adjustments help preserve the value of benefits by accounting for inflation. Each year, the IRS updates contribution limits to reflect economic changes. For HR professionals, staying informed about these updates is essential for maintaining compliant and competitive benefit programs.

On November 5, 2026, the IRS announced several key updates affecting FSAs and other tax-advantaged accounts for the 2027 plan year.

New FSA Contribution Limits for 2027

The Health Care FSA limit for 2027 has been raised to $3,500, allowing employees to set aside more pre-tax dollars for eligible medical expenses. This increase offers greater financial flexibility and potential tax savings.

HR Action Items:

• Update payroll systems and employee communications
• Educate employees on how maximizing FSA contributions can reduce taxable income

FSA Carryover Limit Increase

The optional carryover limit for unused FSA funds has also increased to $700 for 2027. This change provides added flexibility for employees who may not use their full FSA balance within the plan year.

Qualified Transportation and Parking Benefits

The IRS has increased the monthly pre-tax limit for transit and parking benefits to $350. This adjustment helps employees save more on commuting expenses.

HR Pro Tip : Some cities have enacted mandatory commuter benefit ordinances. Employers should review their programs to ensure compliance and update employee materials accordingly.

Adoption Assistance & Tax Credit Updates

The maximum excludable amount for employer-sponsored adoption assistance programs is now $18,250. Additionally, the Adoption Tax Credit has been raised to the same amount, helping families offset the rising costs of adoption.

HR Pro Tip: Provide resources and guidance to help employees understand and claim these valuable benefits.

Health Savings Account (HSA) Contribution Limits

Announced earlier this year:

• Individual HSA Contribution Limit for 2027: $4,500
• Family HSA Contribution Limit for 2027: $9,000
• HDHP Individual Minimum Deductible is $1,750
• HDHP Family Minimum Deductible is $3,500

These contribution limit increases support long-term healthcare savings and offer additional tax advantages.

Retirement Plan Contribution Limits

The IRS has not yet released the 2027 retirement plan COLA updates.

ICYMI: Final IRS Regulations on 401(k) Catch-Up Contributions

• Roth catch-up contributions required for high earners
• New "Super Catch-Up" for ages 60-63
• IRS correction methods for catch-up errors
• Key deadlines and next steps for employers
• FAQs for plan sponsors

Engaging Employees Throughout Their Benefits Journey

The IRS's annual benefit limit adjustments are more than regulatory updates. They're valuable opportunities to help employees maximize the benefits available to them. As you prepare for 2027, be sure to highlight key changes, such as the increased Healthcare FSA contribution limit of $3,500 and the expanded $700 carryover provision, during open enrollment communications.

Benefits education shouldn't end once enrollment is complete. Employees make benefit decisions throughout the year, whether they're using an FSA to manage healthcare expenses, taking advantage of commuter benefits, or exploring adoption assistance. Ongoing communication helps employees understand these programs and make confident, informed choices when they need them most.

Employers that invest in year-round benefits education often see stronger engagement, greater appreciation of their benefits package, and improved overall employee satisfaction. By proactively communicating updates and available resources, HR teams can help employees get more value from their benefits while supporting financial wellness and long-term retention.

Reach out to Navia to learn more about our educational resources and how we can help your organization maximize the impact of its benefits program.