Last updated: November 2026

FSA Limits 2027: Health FSA Rises to $3,500, Dependent Care Stays at $7,500

FSA limits 2027 raise the health flexible spending arrangement (FSA) cap to $3,500 per employee. The Internal Revenue Service (IRS) set it in Revenue Procedure 2026-35, announced November 5, 2026, up from $3,400 for 2026. The dependent care FSA limit stays at $7,500 for 2027.

This page covers 2027. For plans still running under the 2026 numbers, see the FSA limits for 2026.

Health FSA Limits 2027: $3,500 Per Employee

Revenue Procedure 2026-35 sets $3,500 as the limit on voluntary employee salary reductions to a health FSA for taxable years beginning in 2027.

The start of the plan year decides which cap applies. IRS Publication 15-B applies the $3,400 cap to plan years beginning in 2026. A plan year that starts July 1, 2026 keeps the $3,400 cap until it ends June 30, 2027.

The $700 Carryover or a Grace Period

Health FSAs are generally use it or lose it plans. A plan can soften that with a carryover or a grace period, but a health FSA cannot offer both. A grace period runs up to two and a half months after the plan year ends.

The tradeoff is time against amount. A grace period pays expenses incurred in those extra weeks from whatever is left, while a carryover has a dollar cap but pays expenses incurred in the following plan year.

A plan may set its carryover below the $700 maximum for 2027. An employee who elects $3,500 for 2027 and spends $2,500 has $1,000 left, so a plan with the full carryover moves $700 forward and forfeits $300.

Dependent Care FSA Stays at $7,500 for 2027

Section 129 of the tax code sets the dependent care limit at $7,500, or $3,750 for a married person filing separately. The statute has no inflation adjustment, so the limit does not rise for 2027 the way the health FSA cap does.

Two rules can hold an employee below $7,500. The exclusion cannot exceed the smaller of the employee’s or the spouse’s earned income. An employer can exclude dependent care assistance from a highly compensated employee’s wages only if the program does not favor highly compensated employees.

What the $3,500 Saves in Tax

Health FSA contributions made through a cafeteria plan are exempt from federal income tax withholding, Social Security and Medicare tax, and federal unemployment tax. Owners of more than 2% of an S corporation’s stock are not treated as employees for cafeteria plan purposes, so they cannot join the plan.

For 2027 the 22% federal income tax bracket starts above $52,025 of taxable income for a single filer. A worker who stays in that bracket after contributing the full $3,500 saves $770 in federal income tax and $267.75 in Federal Insurance Contributions Act (FICA) tax.

The employer saves its own 7.65% FICA share on the same dollars, another $267.75, as long as the worker’s 2027 wages stay below the $192,300 Social Security wage base.

Set the 2027 Numbers Before Open Enrollment

Employees choose their health FSA amount at the beginning of the plan year, so the 2027 limits belong in the enrollment materials before a 2027 plan year starts.

Before the first 2027 payroll, check the wage base and FICA rates in the 2027 payroll tax rates. The payroll tax rates, forms and penalties page lists the federal filing guides.

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