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PrintThe IRS released cost-of-living adjustments (COLAs) for 2026 reflecting any increases in the flexible spending arrangements (FSA) deferral limit and excludable transportation fringes, among other changes [Rev. Proc. 2025-32, 10-9-25]. The Revenue Procedure also addresses changes made for tax year 2025 by Public Law 119-21, known as the One Big Beautiful Bill Act (OBBBA).
Qualified transportation fringes
The amounts that may be excluded from gross income for employer-provided qualified transportation fringe benefits (transportation in a commuter highway vehicle and any transit pass)
and qualified parking for 2026 increase to $340 ($325 in 2025).
Health FSAs
For plan years beginning in 2026, the dollar limitation under IRC §125(i) on voluntary employee salary reductions for contributions to health FSAs increases to $3,400 ($3,300 in 2025). For cafeteria
plans that permit the carryover of unused amounts, the maximum carryover amount increases to $680 ($660 in 2025).
Standard deduction
The standard deduction amounts for 2026 increase to $32,200 for married couples filing jointly or surviving spouses, $16,100 for single taxpayers and married taxpayers filing separately, and $24,150
for heads of household. For 2025, the OBBBA increased the standard deduction amounts to $31,500 for married couples filing jointly or surviving spouses, $15,750 for single taxpayers and married taxpayers filing separately, and $23,625 for heads of
household.
Federal tax levies
For taxable years beginning in 2026, the dollar amount used to calculate the amount determined under IRC §6334(d)(4)(B) increases to $5,300 ($5,100 in 2025).
Foreign earned income exclusion
For 2026, the maximum foreign earned income exclusion amount under IRC §911(b)(2)(D)(i) is $132,900 (up from $130,000 in 2025). The maximum amount of the foreign housing cost exclusion
is $18,606 (up from $18,200 in 2025).
Medical Savings Accounts
To be eligible to make contributions to a Medical Savings Account (or to have the employer make the contributions), an employee must be covered by a high deductible health plan. For 2026,
a high deductible health plan is a plan with an annual deductible of $2,900-$4,400 for individual coverage (up from $2,850-$4,300 in 2025) and $5,850-$8,750 for family coverage (up from $5,700-$8,550 in 2025).
Maximum out-of-pocket expenses can be no more than $5,850 for individual coverage (up from $5,700 in 2025) and $10,700 for family coverage (up from $10,500 in 2025).
Adoption assistance
For 2026, the maximum amount that can be excluded from an employee's gross income for qualified adoption expenses under an employer's adoption assistance program or in connection with the adoption
of a child with special needs is $17,670 (up from $17,280 in 2025).
The amount excludable from an employee's gross income begins to phase out for taxpayers with adjusted gross income of $265,080 (up from $259,190 in 2025) and is completely phased out for taxpayers with adjusted gross income of $305,080
(up from $299,190 in 2025).
Qualified small employer HRA
For 2026, a qualified small employer health reimbursement arrangement (QSEHRA) is an arrangement which, among other requirements, makes payments and reimbursements for qualifying medical
care expenses of an eligible employee that do not exceed $6,450 (up from $6,350 for 2025), or $13,100 in the case of an arrangement that also provides for payments or reimbursements for family members of the employee (up from $12,800 for 2025).
Compliance