2025 Inflation Adjustments for Employee Benefit Plan Limits

The IRS announced its annual inflation adjustments for various employee benefit plan limits effective for taxable years beginning in 2026. HR professionals should be aware of these updates to ensure compliance and help employees maximize their benefits. Some of the limits should be communicated during open enrollment. Below is a summary of the key changes:

Cafeteria Plans

For 2026, the dollar limit on voluntary employee salary reductions for contributions to health flexible spending arrangements (FSAs) has increased to $3,400, up from $3,300 in 2025. If the cafeteria plan allows for the carryover of unused amounts, the maximum carryover amount for 2026 is $680, an increase from $660 in 2025. The dependent day care FSA limits are increased to $7,500 ($3,750 for married individuals filing separately).

Qualified Transportation Fringe Benefit

For taxable years starting in 2026, the monthly limit on the exclusion for qualified transportation benefits has been adjusted:

1. The limit for transportation in a commuter highway vehicle and any transit pass is $340 per month (up from $325 in 2025).
2. The limit for qualified parking is also $340 per month (up from $325 in 2025).

Adoption Assistance Programs

For 2026 the amount an employee can exclude from gross income for the adoption of a child with special needs is $17,670 (up from $17,280 in 2025). The maximum exclusion for expenses incurred by an employer for qualified adoption expenses under an adoption assistance program is also $17,670.

Additionally, the exclusion begins to phase out for taxpayers with a modified adjusted gross income exceeding $265,080, with the exclusion completely phasing out at $305,080 or more.

Medical Savings Accounts (MSAs)

For 2026, the IRS has updated the definitions for high-deductible health plans (HDHPs) under

Medical Savings Accounts:

1. Self-only coverage: The annual deductible must be between $2,900 and $4,400, with out-of-pocket expenses not exceeding $5,850.
2. Family coverage: The deductible must be between $5,850 and $8,750, with out-of-pocket expenses capped at $10,700.

Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)

For 2026, to qualify as a QSEHRA, the annual limit on payments and reimbursements is $6,450 for self-only coverage and $13,100 for family coverage. These limits represent a slight increase from the 2025 limits of $6,350 and $12,800, respectively.

These updates reflect the annual inflation adjustments and should be reviewed by HR professionals to ensure that benefit plan offerings comply with IRS regulations and that employees are informed of the updated limits for 2026.

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This article is for informational purposes only and is not intended as legal, tax, or benefits advice. Readers should not rely on this information for taking (or not taking) any action relating to employment, compliance, or benefits. Always consult with a qualified professional before making decisions based on this content.