Workers will be able to put up to $3,500 into a health flexible spending account for tax years that begin in 2027, the IRS said in its Nov. 5 inflation adjustments. Plans that allow carryover can let workers keep up to $700 of unused money into the next year. Both limits are higher than this year’s: the salary reduction cap is up $100 and the carryover maximum is up $20.
A health flexible spending account, or FSA, is a benefit set up by an employer. A worker picks a yearly amount, the employer takes it out of each paycheck before taxes, and the money later pays medical bills. The tax break is real, and so is the catch: money left over at the end of the plan year is usually lost.
The new numbers matter most to anyone still working who will be asked this fall how much to set aside for 2027. Workers whose employer offers a health FSA have two things to settle: the yearly amount, which cannot go above $3,500, and whether the plan lets leftover money roll over. The $700 is a ceiling, not a promise. Each employer decides whether its plan offers any carryover at all.
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The 2027 health FSA numbers
The IRS laid out the figures in its news release on the tax year 2027 inflation adjustments, numbered IR-2026-133. The salary reduction limit for a health FSA is $3,500 for tax years beginning in 2027, up $100. The maximum carryover, for plans that permit one, is $700, up $20. The agency says the 2027 adjustments generally apply to tax returns filed in 2028.
In dollars, the change is small. A worker who maxes out the account will have $3,500 taken from pay across 2027, compared with $3,400 under this year’s cap, or $100 more over the year. The full list of adjustments sits in Revenue Procedure 2026-35, the IRS document the release is built on.
The same release also moves limits for medical savings accounts, the accounts tied to high-deductible plans. For self-only coverage, the annual deductible must fall between $3,000 and $4,550 in 2027, and the maximum out-of-pocket expense is $6,050. Those figures are separate from the FSA cap and apply only to people with that type of account.
Carryover or grace period: a plan gets one
Under IRS Publication 969, unused FSA balances generally do not carry into the next year. A plan can soften that rule in one of two ways. It can give a grace period of up to 2 1/2 months after the plan year ends, during which expenses can still be paid from the old balance. Or it can allow a carryover. A plan cannot offer both.
The 2025 edition of the publication lists the carryover maximum at $660. The 2027 figure is $700. Anything above the carryover cap is forfeited. With a grace period there is no dollar cap on what stays usable, but the spending has to fall inside the extra months, and the IRS says the employer cannot refund any of the balance to the worker.
That choice changes how risky a high election is. A plan with a grace period gives a worker a few more weeks to use up the money. A plan with carryover protects only the first $700. Anyone comparing a job’s plan with a spouse’s plan can ask the benefits office which option each one uses before picking a number.
What the account can and cannot pay for
Publication 969 says health FSA money covers medical expenses that would generally qualify for the medical and dental expense deduction. That includes costs for the worker, a spouse, claimed dependents and a child under age 27 at the end of the tax year. Over-the-counter medicine and menstrual care products qualify, with or without a prescription.
Some costs are off limits. A health FSA cannot pay health insurance premiums or long-term care costs, and it cannot cover expenses another plan already paid. Reimbursement needs a written statement from an independent third party showing the expense and the amount, plus a statement that no other coverage paid it. An FSA also cannot pay for future expenses in advance, and self-employed people are not eligible.
Workers with a high-deductible health plan face another catch. The IRS says an employee who also has a general-purpose health FSA generally cannot contribute to a health savings account. The exceptions are a limited-purpose FSA, which cannot pay for long-term care and can pay for preventive care before the deductible is met, and a post-deductible FSA, which pays nothing until the plan’s minimum deductible is met.
The full amount on day one, the forfeit on the last day
One feature favors the worker. The IRS says the full yearly election can be used at any time during the coverage period, even if only a few paychecks have gone in. A worker who elects $3,500 can submit a large February bill against the whole $3,500 even though only a fraction has come out of pay by then.
The other side is the forfeiture rule. As an illustration, a worker who elects $3,500 and incurs $2,000 in eligible costs has $1,500 left over. If the plan allows the $700 carryover, $800 is forfeited. If the plan offers neither carryover nor grace period, the whole $1,500 is gone. The Nov. 5 release changes dollar figures. The rule that unused balances generally do not carry over is still the starting point in Publication 969.
That leaves one question the IRS cannot answer for anyone: how much eligible spending is certain in 2027. The agency has set the $3,500 ceiling and the $700 carryover limit. A household’s own dental work, glasses, prescriptions and copays decide how close to the ceiling an election should be.
Is $3,500 the right health FSA number for 2027?
The FSA cap is one number in a bigger question: where a household’s health and tax dollars quietly go. Money locked into a use-it-or-lose-it account is money that cannot fund other costs, and Medicare, taxes and the house are leaks of their own.
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This article was produced with AI assistance and edited for accuracy against the sources linked above.
