The IRS has announced updated contribution limits for 2027, bringing positive changes for employees and employers who offer Flexible Spending Accounts (FSAs), Health Savings Accounts (HSAs), and other tax-advantaged benefit programs.
One of the key updates is the increase in the Medical Flexible Spending Account (FSA) contribution limit from $3,400 in 2026 to $3,500 in 2027. This adjustment reflects inflation and gives employees additional flexibility to set aside pre-tax dollars for eligible healthcare expenses.
For employers preparing for the 2027 Open Enrollment season, understanding these updated limits is essential to ensuring benefit plans remain current and employees can make informed enrollment decisions.
2027 Updated Contribution Limits
Here is a breakdown of the announced 2027 contribution limits compared with 2026:
| Plan Type | 2027 Limit | 2026 Limit |
| Medical FSA | $3,500 | $3,400 |
| Limited Purpose FSA | $3,500 | $3,400 |
| Maximum FSA Carryover | $700 | $680 |
| Dependent Care Account (Family) | $7,500 | No change |
| Dependent Care Account (Individual) | $3,750 | No change |
| Transit Benefits | $350/month | $340/month |
| Parking Benefits | $350/month | $340/month |
| HSA – Self-Only Coverage | $4,500 | $4,400 |
| HSA – Family Coverage | $9,000 | $8,750 |
Note: The 2027 HSA contribution limits were released separately in May 2026.
What Does the Medical FSA Increase Mean for Employees?
A Medical FSA allows employees to contribute a portion of their paycheck on a pre-tax basis to pay for eligible out-of-pocket healthcare expenses.
With the 2027 limit increasing to $3,500, employees will have an additional $100 in annual contribution capacity compared with 2026.
These funds can help cover eligible expenses such as:
- Doctor visits and medical services
- Prescription medications
- Dental treatments and procedures
- Vision care, including eligible prescription glasses and contact lenses
- Other qualified out-of-pocket healthcare expenses
Because contributions are generally deducted from paychecks before taxes, FSAs can help employees reduce their taxable income while preparing for anticipated healthcare costs.
What Employers Need to Know for 2027
Employers should review their existing benefit plans and prepare for the upcoming 2027 Open Enrollment season.
The updated limits provide an opportunity to review FSA offerings, communicate changes to employees, and ensure benefit administration is aligned with the latest IRS guidelines.
According to the latest Flex Facts update, participating benefit plans will automatically be updated to reflect the new 2027 contribution limits. However, employers who prefer not to adopt the increased limits should communicate their desired contribution amounts to their plan administrator.
Employers should also consider updating employee benefit materials, enrollment communications, and internal HR resources to reflect the new limits.
Prepare for a Smooth 2027 Open Enrollment
With the 2027 Open Enrollment season approaching, staying informed about IRS contribution limit changes can help employers and employees make better decisions about their benefits.
Understanding how FSAs, HSAs, dependent care accounts, and commuter benefits work together can also help businesses build a more comprehensive and competitive employee benefits package.
At Cosmo Insurance Agency, we help businesses navigate employee benefits, understand plan updates, and find solutions that support both employers and their employees.
Whether you need help reviewing your current benefits package, evaluating FSA and HSA options, or preparing for your 2027 renewal, our team is here to help.
Have questions about the 2027 contribution limits or your employee benefits?
Contact Cosmo Insurance Agency at 732-363-3888 or visit cosmoins.com to learn how we can help you prepare for a successful 2027 Open Enrollment season.
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