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).
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.
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.
