2027 Health FSA & Qualified Transportation Limits

by Michelle Cammayo · Nov 9, 2026

The annual limit for employee contributions toward health FSAs for 2027 plan years is $3,500 (increased from $3,400 in 2026), with the ability to carryover up to $700 (increased from $680 in 2026).

The limit on monthly contributions toward qualified transportation and parking benefits for 2027 is $350 (increased from $340 in 2026).

Health Flexible Spending Arrangements (FSAs)

The health FSA salary reduction limit applies on a plan year basis, not necessarily on a calendar year basis. For example, a health FSA with an April – March plan year could allow employees to elect to contribute up to $3,400 for the April 2026 – March 2027 plan year and up to $3,500 for the April 2027 – March 2028 plan year.

The 2027 annual contribution limit of $3,500 for health FSAs applies to employee salary reductions, and the same limit applies for general-purpose and limited-purpose health FSAs. Employer contributions are not subject to the limit but are subject to different restrictions under healthcare reform rules.

NOTE: Annual dependent care assistance program (DCAP) reimbursement limits are set by statute and are not subject to inflationary adjustments. Beginning in 2026, legislation increased the DCAP limit to $7,500 for single taxpayers and married couples filing jointly (up from $5,000), and to $3,750 for married individuals filing separately.

Tips for Employee Health FSA Contributions

Employees may elect up to $3,500 for 2027 even if they carried over unused amounts from the prior plan year. The maximum carryover amount into a 2027 plan year is $680, while the maximum carryover amount from a 2027 plan year into a subsequent plan year is $700.
Employees who join mid-plan year may elect up to $3,500 for the remainder of the plan year. The annual contribution limit is required to be prorated only when the employer runs a short plan year (<12 months) for all participants.
The limit applies per employee, rather than on a household basis, so if both spouses are employed and eligible for health FSA coverage, each spouse could contribute up to $3,500 for 2027.
The limit applies on a per employer basis, so an employee who works for two separate employers that are unrelated (i.e., not part of a controlled group or affiliated service group due to common ownership or shared services), whether simultaneously or at different times during the same plan year, may elect up to $3,500 under each employer’s health FSA.

Health FSA – Terminated Participants

The combination of employee and employer contributions, if applicable, elected for the plan year must be made available throughout the plan year to reimburse qualifying medical expenses, even if the amounts have not yet been contributed (the “uniform coverage” rule). If an employee exhausts the funds and then terminates participation mid-plan year, the employer cannot request repayment.

If an employee’s FSA is underspent, Cobra must be offered and continues only up to the end of the FSA Plan Year.

Qualified Transportation Benefits (Transportation & Parking)

Instead of annual contribution limits, qualified transportation fringe benefits are subject to monthly limits. The 2027 monthly limit of $350 applies separately to:

qualified parking; and
the combination of commuter highway vehicles and transit passes.

An employee may receive up to $350 per month for qualified parking and up to $350 per month for commuter highway vehicle and transit pass benefits, for a combined maximum benefit of $700 per month. For qualified transportation fringe benefits, both employee and employer contributions count toward the monthly limit.

Just like contribution limits apply monthly, employees generally have an opportunity to change elections monthly (or even more frequently). Unused contributions cannot be cashed out, but they can be used in subsequent months. So, if an employee fails to use all amounts contributed for qualified transportation or parking benefits and then terminates coverage, the leftover amounts would be forfeited. But if the employee continues participation in the plan, and perhaps reduces contributions for future months, unused amounts from one month may be used for coverage in later months (up to $350 in any given month).

IMA will continue to monitor regulator guidance and offer meaningful, practical, timely information. This material should not be considered as a substitute for legal, tax and/or actuarial advice. Contact the appropriate professional counsel for such matters. These materials are not exhaustive and are subject to possible changes in applicable laws, rules, and regulations and their interpretations.