Starting in 2027, workers can set aside more money in their Health Flexible Spending Accounts (FSAs), with the annual contribution limit rising to $3,500, up from $3,400 in 2026. The bottom line is that this increase can help workers lower their taxable income and cover more medical expenses, and by maximizing their health FSA contributions, they can reduce their annual tax burden.
Understanding Health FSAs
A Health FSA is a type of tax-advantaged financial account that allows employees to set aside part of their earnings to pay for qualified out-of-pocket healthcare expenses, according to the Internal Revenue Service (IRS). Contributions are generally deducted from an employee’s paycheck before federal income and payroll taxes are calculated, reducing taxable income and helping workers save on eligible medical costs. The IRS announced that the maximum amount employees can voluntarily contribute to a Health FSA through salary reductions will rise to $3,500 in 2027, a $100 increase from the $3,400 limit established for 2026.
Maximizing Health FSA Contributions
To maximize their health FSA contributions, workers should estimate their upcoming qualified medical expenses, such as deductibles, copayments, and prescription medications, and contribute up to the $3,500 cap. By the numbers, contributing to a Health FSA can reduce taxable income and lower federal income and payroll taxes. For example, if an employee contributes $3,500 to a Health FSA, they can reduce their taxable income by $3,500, which can result in tax savings. Investors will note that the increase in the Health FSA contribution limit can provide more tax savings opportunities for workers.
Carry-Over Rules and Planning Tips
Employers may also increase the carry-over allowance to $700 in 2027, up from $680 in 2026, but only if the plan offers a carry-over option. Unused funds above this limit are forfeited, so employees should carefully plan their contributions to maximize their tax savings. The figure that matters is the $3,500 contribution limit, which can help workers cover more medical expenses. By understanding the carry-over rules and planning their contributions, workers can make the most of their Health FSA and reduce their tax burden.
Next Steps
Employees who want to take advantage of the increased limits must take action during Open Enrollment. For example, USPS employees can enroll in an FSA during the open season from November 9 to December 14, and must re-enroll each year to continue using the benefit. The University of Nebraska’s benefits enrollment guide and employee checklist can also help employees navigate the process.
As the open enrollment period for 2027 begins, employees should review and update their benefit elections to take advantage of the increased Health FSA contribution limit. The deadline for the University of Nebraska’s NuFlex Benefits Enrollment is November 13, so employees should log in and make their elections prior to the deadline. By doing so, they can ensure they are taking full advantage of the tax savings opportunities available to them. Talk to your doctor or oncologist to understand how to make the most of your Health FSA contributions.
Sources
- Good news for workers: Health FSA limits are going up, so you’ll be able to set aside more money starting in 2027
- Flexible spending account
- IRS announces increased Healthcare Flexible Spending Account limit for 2027 | CWRU Newsroom | Case Western Reserve University
- FSAs help employees save on healthcare
- Last week for NuFlex Benefits Enrollment
- 25 genius ways to spend your remaining FSA dollars for 2026
Photo: Carol M. Highsmith (Public domain)
