Last updated: October 2026

FSA Limits 2026: Contribution Caps for Health and Dependent Care

FSA limits 2026 cap health flexible spending arrangement (FSA) contributions at $3,400 per employee. The Internal Revenue Service (IRS) announced a $100 increase over 2025 in Revenue Procedure 2025-32. The dependent care FSA rose to $7,500 for 2026.

What changed for FSA in 2026 is modest on the health side and large on the daycare side. The daycare cap rose by half.

Health FSA Limits 2026 Rise to $3,400

If your plan year runs July to June, the $3,400 cap applies only to the plan year starting in 2026.

A worker in the 22% federal bracket for 2026 who contributes the full $3,400 saves $748 in federal income tax and $260.10 in Federal Insurance Contributions Act (FICA) tax.

Dependent Care FSA Rises to $7,500

The dependent care FSA cap is $7,500 for 2026 for most employees and $3,750 for married filing separately. Those numbers had held at $5,000 and $2,500 since the Tax Reform Act of 1986, except for a one-year limit of $10,500 in 2021. The increase is written into the statute rather than indexed, so it does not adjust with inflation the way the health FSA cap does.

High-income families cannot always use the full $7,500 anyway. An employer can exclude dependent care assistance from a highly compensated employee’s wages only if the program does not favor highly compensated employees.

FICA Savings Reach the Employer Too

Section 125 cafeteria plans let employees fund FSAs with pretax dollars.

Employers gain from the same mechanism. FICA savings apply to the employer share too, at 7.65% of each pretax dollar for a worker below the 2026 Social Security wage base of $184,500. For a company with 50 workers each contributing $2,000, that is roughly $7,650 in annual employer payroll tax savings.

Owners of S corporations with more than 2% ownership cannot participate in the cafeteria plan.

Carryover or Grace Period: Plan Sponsors Pick One

The IRS lets plan sponsors offer one of three end-of-year options on a health FSA. Option one is the FSA carryover, now $680 for plan years beginning in 2026. Option two is a grace period of up to two and a half months after plan year end. Option three is neither, meaning strict use it or lose it rules apply on the final day of the plan year.

Employers cannot offer both carryover and grace period on the same FSA.

The tradeoff with carryover is narrow coverage. It only protects the first $680 of leftover funds, so an employee who contributes $3,400 and spends $2,500 still forfeits $220 at year end.

The carryover amount is indexed to inflation just like the main contribution limit. The $680 for 2026 is up from $660 in 2025.

Run This Check Before Open Enrollment Closes

Pull last year’s medical expense receipts before you pick your 2026 number. Total the copays, prescription costs, dental work, vision, and out-of-pocket deductibles. Round down by 10% to leave room for error. That total is your realistic health FSA election.

The tradeoff with rounding down is the forfeiture risk you accept in reverse. Underelect and you still pay tax on out-of-pocket medical costs that would have run through the FSA.

Eligible expenses are defined in IRS Publication 969, which covers health savings accounts, FSAs, and medical savings accounts. Over-the-counter medicine counts whether or not it is prescribed, and so do menstrual care products.

For dependent care FSA, compare expected daycare costs against the $7,500 ceiling that applies for 2026 and your spouse’s income.

Employers setting up a new cafeteria plan should review IRS Publication 15-B for fringe benefit rules before the first payroll deduction runs.

Read the guide on 2026 payroll tax rates to verify that your FICA wage base matches your payroll system.

Check the payroll tax hub for quarterly filing deadlines.

This is not legal or financial advice. Consult a qualified professional for your specific situation.