IRS announces health and welfare benefit plan limits for 2027

The IRS has released additional cost-of-living adjustment (COLA) limits for health and welfare benefit plans for 2027. These limits, which are adjusted annually for inflation, affect the maximum tax-favored benefits employers may offer and employees may contribute.

The newly released figures include the 2027 limits applicable to health flexible spending arrangements (FSAs), qualified transportation fringe benefits and adoption assistance. Earlier this year, the IRS separately released the 2027 limits applicable to health savings accounts (HSAs), high-deductible health plans (HDHPs) and excepted benefit health reimbursement arrangements (HRAs).

Employers should review these new limits as they prepare plan materials, payroll systems and employee communications for 2027.

Executive summary

• The health FSA employee contribution limit increases to $3,500 for plan years beginning in 2027, with a maximum carryover of $700.

• The monthly exclusion for qualified transportation fringe benefits increases to $350 for qualified parking and $350 for transit passes and vanpooling.

• The maximum adoption assistance amount increases to $18,250.

• Previously released 2027 HSA contribution limits are $4,500 for self-only coverage and $9,000 for family coverage.

• Some of the 2027 retirement plan COLA limits have not yet been released. The COLA card (opens a new window) will be updated when those remaining figures become available.

Health FSA limits increase

For plan years beginning in 2027, employees may contribute up to $3,500 to a health FSA, an increase from $3,400 for 2026. The maximum amount an employer may permit employees to carry over into the following plan year increases from $680 to $700.

These increases should be reflected in plan administration and employee communications for employers that permit contributions up to the statutory maximum. Employers offering a carryover should also review their plan documents to determine whether the carryover amount is stated as a fixed dollar amount or automatically adjusts with the IRS limit.

Transportation benefits increase

For 2027, the monthly limitation for qualified transportation fringe benefits increases to $350. The limit applies separately to qualified parking and to the combined benefit for transit passes and transportation in a commuter highway vehicle, commonly referred to as vanpooling. The newly published inflation-adjustment information reports the $350 monthly amount. Employers offering commuter benefits should review payroll and benefit administration systems to ensure the new limits are implemented for 2027.

Adoption assistance increases

For 2027, the maximum amount available for qualifying adoption assistance increases to $18,250. The inflation-adjustment release reports the corresponding maximum adoption amount at $18,250.

Employers sponsoring adoption assistance programs should review plan materials and administrative systems for the updated 2027 amount.

Previously announced HSA and HDHP limits

The IRS previously announced the HSA and HDHP limits for 2027 in Revenue Procedure 2026-24. For 2027:

The IRS confirms each of these 2027 amounts in Revenue Procedure 2026-24 (opens a new window).

More to come from the IRS

The IRS has not yet released the 2027 retirement plan COLA limits, so those figures remain pending. We will update the COLA card (opens a new window) when the remaining limits are released.

Employer action

Plan sponsors should review benefit plan documents, enrollment materials, payroll programming and benefit administration systems to determine whether updates are needed for the 2027 limits.

Not legal advice: Nothing in this alert should be construed as legal advice. Lockton may not be considered your legal counsel, and communications with Lockton's Compliance Consulting group are not privileged under the attorney-client privilege.

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