Health FSA 2027: $3,500 Limit, $700 Carryover, QSEHRA $6,700

The limits side by side: 2025, 2026 and 2027

Open enrollment for calendar-year plans runs in November and December, so the 2027 election you sign now is capped by the new numbers. Each row below comes from the revenue procedure for that year, or from the statute where the revenue procedure is silent.

Source: IRS Rev. Proc. 2024-40, 2025-32 and 2026-35; 26 U.S.C. 129 (Cornell Legal Information Institute). The $5,250 education figure for 2025 and 2026 is the statutory amount: Rev. Proc. 2025-32 section 2.09 says the $5,250 maximum “will be adjusted for inflation for taxable years beginning after 2026”, which is why 2027 is the first year it moves.

Two patterns are worth seeing. The carryover is exactly 20% of the health FSA limit in all three years (our arithmetic: 660 / 3,300, 680 / 3,400, 700 / 3,500), so if the limit moves again, expect the carryover to follow. And the dependent care row is the only one that does not move in 2027, because it is set by Congress rather than by an inflation formula: section 129(a)(2)(A) now reads “$7,500 ($3,750 in the case of a separate return by a married individual)” and the text has no indexing clause. Rev. Proc. 2026-35 does not list a section 129 figure.

Revenue Procedure 2026-35 says it applies “to taxable years beginning in 2027” (section 4.01). If your employer’s plan year is not the calendar year, ask HR which limit applies to your plan year before you read the table.

Grace period or carryover: what your plan can do

An FSA is a use-it-or-lose-it account. Publication 969 says that amounts left at the end of the plan year can’t generally be carried over, with two options the employer may adopt:

• Grace period: up to 2 1/2 months after the plan year ends, during which expenses can be paid from the prior year’s balance (Publication 969).
• Carryover: up to the annual maximum ($680 for 2026, $700 for 2027) of unused money is available for expenses in the next plan year. Anything above it is forfeited, and the plan may set a lower cap or none (Publication 969; Notice 2013-71).

The employer chooses one. Notice 2013-71 states that “A plan adopting this carryover provision is not permitted to also provide a grace period with respect to health FSAs.” The carryover does not count against the election limit: Notice 2013-71 says the plan may let a person carry over the unused amount and “also elect up to the maximum allowed salary reduction amount”, so in a plan with the full carryover you could have up to $3,500 of new money plus $700 of old money in 2027 (our reading of the notice, our arithmetic).

The carryover is measured after the run-out period. Notice 2013-71 defines the unused amount as the amount “unused after medical expenses have been reimbursed at the end of the plan’s run-out period” for the plan year, so late claims use the money first. The practical test for an employee with a high income is to read the plan document, not the benefits brochure: whether you have a grace period, a carryover or neither is written there.

The HSA question: why the FSA type matters

For a household that wants to keep paying into a health savings account, the health FSA you choose decides whether that is allowed. Publication 969 says: “An employee covered by an HDHP and a health FSA or an HRA that pays or reimburses qualified medical expenses can’t generally make contributions to an HSA.” The general-purpose health FSA is the one that covers any qualified medical expense, so choosing it normally ends HSA eligibility for the year.

The exception is the limited-purpose FSA. Publication 969 lists, among the arrangements that may be combined with an HSA, a “limited-purpose health FSA or HRA”, which can pay or reimburse the items listed under Other health coverage “except long-term care”, and also “preventive care expenses”. In plain terms: dental, vision and preventive care from the FSA, everything else from the HSA. A post-deductible health FSA, which pays nothing before the minimum deductible is met, is another listed combination.

Publication 969 also covers the grace period case: “Coverage during a grace period by a general purpose health FSA is allowed if the balance in the health FSA at the end of its prior-year plan is zero.” In other words, a leftover balance in a general-purpose FSA with a grace period can cost you HSA eligibility in the first months of the next year. Whether a carried-over balance has the same effect is not addressed in the passages of Publication 969 or Notice 2013-71 we read, so ask your plan administrator in writing before moving to an HSA-eligible plan.

Another 2027 health-related limit from the same revenue procedure, the long-term care premium deduction, is in our long-term care premium guide. The HSA side of the choice, including the 2027 contribution limits and the Medicare timing rules, is in our HSA and Medicare guide.

Dependent care: the one that changed by law

The dependent care exclusion is separate from the health FSA. It lets an employee exclude from income dependent care assistance that the employer provides under a program described in section 129(d), and the amount “shall not exceed $7,500 ($3,750 in the case of a separate return by a married individual)” (26 U.S.C. 129(a)(2)(A)). Public Law 119-21, section 70404, replaced $5,000 and $2,500 and says the change applies “to taxable years beginning after December 31, 2025” (note to section 129). 2026 was therefore the first year at $7,500, and 2027 stays there.

Section 129(b) adds an earned-income cap: the exclusion cannot exceed the earned income of an unmarried employee, or the lesser of the employee’s and the spouse’s earned income if married. A couple where one spouse earns little can reach that cap before the dollar cap. Read the plan summary for how your employer runs it.

What the cap is worth at the 32% and 35% brackets

The 2027 federal income tax brackets (Rev. Proc. 2026-35, section 3.01) start the 32% rate at taxable income of $416,650 for married couples filing jointly and $208,325 for unmarried individuals, and the 35% rate at $529,100 and $264,550. Pre-tax elections reduce income at the top of your bracket, so the saving is the amount times your marginal rate. This is federal income tax only; FICA and state tax are not counted. The full 2027 brackets are in our Rev. Proc. 2026-35 brackets guide.

Our arithmetic: amount multiplied by 0.32 or 0.35. The forfeiture row is the $300 lost minus the tax value of having elected it ($96 at 32%, $105 at 35%). It assumes a plan with the $700 carryover, an election of $3,500 and $2,500 of claims, so $1,000 is left, $700 carries over and $300 is forfeited.

The forfeiture row is the number that should shape the election. A health FSA saves tax only on money you spend. Elect what you can predict: prescriptions, dental, vision, a known procedure. A carryover cushions a miss, but only by $700 and only if the plan has it.

What a reader can do with this

• Pick the FSA type before the amount. If an HSA-eligible high-deductible plan is on the menu, a limited-purpose FSA keeps the HSA open and a general-purpose FSA normally closes it.
• Find out in writing whether your plan has a grace period, a carryover or neither, and whether the carryover is the full $700 or something lower.
• Elect dependent care against the lower of two earned incomes if you are married, and keep receipts that name the provider.
• Business owners with a small team: the QSEHRA maximums are $6,700 self-only and $13,550 family in 2027, set by section 9831(d) as adjusted; the plan terms are the employer’s to set.
• Check the plan year. Rev. Proc. 2026-35 speaks of taxable years beginning in 2027; a plan year that began in 2026 uses the 2026 figures.

FAQ

Sources, read and saved on November 7, 2026: IRS Rev. Proc. 2026-35 (sections 3.01, 3.16, 3.17, 3.18, 3.68 and 4.01); Rev. Proc. 2025-32 (sections 2.09, 4.15, 4.16, 4.63); Rev. Proc. 2024-40; Notice 2013-71; IRS Publication 969 (2025); 26 U.S.C. 129 and the Pub. L. 119-21 amendment note (Cornell Legal Information Institute). The tax-saved figures are our arithmetic. This is analysis of public documents, not investment, legal or tax advice.