Health FSA Contribution Limit 2026: $3,400 Cap and Carryover Rules

The 2026 health FSA contribution limit is $3,400 per employee, an increase from $3,300 in 2025. The Internal Revenue Service set the new number in Revenue Procedure 2025-32, along with a higher carryover cap for employers who offer that feature. This guide covers the new limit, the carryover and grace period rules, and how a health FSA fits inside a Section 125 cafeteria plan.

What Is the 2026 Health FSA Contribution Limit?

The 2026 health FSA salary reduction contribution limit is $3,400 per employee, a $100 increase from the $3,300 limit in 2025. This limit applies per employee, not per household, so a married couple who both have access to a health FSA through their own employer can each contribute up to $3,400 into their separate accounts in 2026.

The limit is set by the employee's election, not by family size or coverage tier. An employee with self-only coverage and an employee with family coverage face the same $3,400 cap, unlike the HSA contribution limit, which differs by coverage type. To compare how HSA limits work differently, see the HSA contribution limits guide.

Can Unused Health FSA Money Roll Over to the Next Year?

Unused health FSA money can roll over to the next year only if the employer's plan includes a carryover provision, and even then only up to $680 can carry into a plan year beginning in 2026. The health FSA carryover from the 2025 plan year into 2026 is capped at $660, which is 20% of the 2025 limit of $3,300. The higher $680 figure applies to money carrying forward from a 2026 plan year into 2027, since it is calculated as 20% of the new $3,400 limit.

Employers do not have to offer a carryover at all. A plan can instead offer a grace period of up to 2 months and 15 days after the plan year ends, giving employees extra time to spend down their balance, or a plan can offer neither and apply the standard use-it-or-lose-it rule with no extension. The Internal Revenue Service does not allow a single plan to offer both a carryover and a grace period in the same plan year, so employers have to choose one option or the other under IRS Notice 2013-71.

Is a Health FSA the Same as an HSA?

No, a health FSA and an HSA are not the same, and a general purpose health FSA can actually block an employee from contributing to an HSA at all. A standard health FSA counts as other disqualifying health coverage under IRS rules, which means an employee enrolled in a general purpose health FSA cannot also contribute to a health savings account, even if they have an HSA-eligible high deductible health plan. Employers who want to offer both benefits typically need a limited purpose FSA, which restricts reimbursements to dental and vision expenses only, so it does not disqualify HSA eligibility. For a full side-by-side comparison, see HSA vs. FSA: which one fits your plan.

This is a common setup mistake. An employer that rolls out an HSA-eligible HDHP alongside its existing general purpose health FSA without switching to a limited purpose design can unintentionally disqualify every employee in the FSA from making HSA contributions for that plan year, even employees who never intended to use the FSA. Reviewing FSA design before adding an HDHP option protects the HSA election for the whole workforce.

How Does a Health FSA Interact with a Section 125 Plan?

A health FSA is itself a benefit offered through a Section 125 cafeteria plan, so every dollar an employee elects into it already comes out of payroll before federal income tax and FICA are calculated. A Section 125 cafeteria plan is the IRS-recognized structure that lets an employer offer a health FSA, along with medical premiums, dental and vision premiums, and dependent care assistance, all funded with pre-tax salary reductions.

The FICA savings apply the same way they do for any other Section 125 election. FICA tax is 7.65% combined, split 6.2% for Social Security and 1.45% for Medicare, and it applies to both the employer and the employee. When an employee elects $200 a month into a health FSA, both sides avoid FICA on that $200 every pay period. See the full FICA savings math for pre-tax benefits for the calculation across different election amounts.

What Can Employees Buy With Health FSA Funds?

Employees can use health FSA funds for qualified medical, dental, and vision expenses not otherwise reimbursed by insurance, including copays, deductibles, prescriptions, and many over-the-counter items. The full list of eligible expenses is defined by IRS Publication 502, and a plan administrator confirms eligibility at the point of purchase or reimbursement.

Money left in the account after the plan year ends, beyond any carryover or grace period the plan allows, is forfeited back to the employer under the use-it-or-lose-it rule. This is the tradeoff for the upfront tax break: an employee gets the full $3,400 available on day one of the plan year, even before they have contributed that much through payroll, but any amount left unspent past the carryover or grace period is gone.

What Should Employers Do Before the 2026 Plan Year?

Employers with a calendar-year health FSA should update payroll deduction caps and plan documents to reflect the new $3,400 limit before January 1, 2026, since a payroll system still capped at the 2025 limit of $3,300 will block employees from reaching the full 2026 maximum. Plan documents also need to state the correct carryover amount, $680 for balances carrying into 2027, if the plan uses that feature.

Employers should also confirm whether their current design uses a carryover, a grace period, or neither, and communicate that choice clearly during open enrollment so employees can plan their election around it. <a href="/blog/section-125-cafeteria-plan-2026-guide">Read the complete Section 125 cafeteria plan guide</a> to see how a health FSA fits alongside HSA, dependent care, and other pre-tax benefits.

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Frequently Asked Questions

Sources: Internal Revenue Service, Revenue Procedure 2025-32 (health FSA and other inflation-adjusted limits for 2026); Internal Revenue Service, Notice 2013-71 (health FSA carryover option); Internal Revenue Service, Publication 502 (Medical and Dental Expenses); Internal Revenue Service, Publication 969 (Health Savings Accounts and Other Tax-Favored Health Plans).