Each year, the IRS updates employer-provided fringe benefit limits to adjust for inflation. These cost-of-living adjustments (COLAs) influence compensation strategy, employee benefit design, tax planning, and payroll administration. As you prepare for the year ahead, now is the ideal time to review the changes and ensure your organization is budgeting accurately and communicating effectively with employees.
Below are the key 2026 updates employers should be aware of.
Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs)
The maximum QSEHRA payments and reimbursements increase to:
$6,450 for self-only coverage
$13,100 for family coverage
(Up from $6,350 and $12,800)
Pension-Linked Emergency Savings Accounts (PLESAs)
Authorized under the SECURE 2.0 Act, PLESAs allow participants to save for emergencies within eligible defined contribution plans (such as 401(k)s).
The 2026 contribution limit increases to $2,600 (up from $2,500).
Qualified Transportation Fringe Benefits
The monthly exclusion amounts for 2026 are:
$340 for qualified parking
$340 for transit passes and vanpooling
(Up from $325)
Health Flexible Spending Accounts (FSAs)
New 2026 limits include:
$3,400 maximum employee salary reduction contribution (up from $3,300)
$680 maximum allowable carryover for plans permitting carryovers (up from $660)
Qualified Education Loan Repayments
The One Big Beautiful Bill Act (OBBBA), enacted in July, permanently extended the exclusion for employer-provided payments toward qualified education loans.
Employers may exclude up to $5,250 per employee, with future amounts subject to inflation adjustments.
Dependent Care Assistance Program (DCAP)
While the DCAP limit is not inflation-adjusted, the OBBBA increased the maximum annual exclusion to:
$7,500 per return
$3,750 for married individuals filing separately
(Up from $5,000 and $2,500)
Several general tax limit adjustments—such as the 2026 tax brackets, earned income credit amounts, and standard deduction—will also impact the federal income tax savings related to DCAP participation.
Adoption Assistance Exclusion & Adoption Credit
For 2026:
Maximum exclusion and credit both increase to $17,670 per child (up from $17,280).
Phaseout begins when modified adjusted gross income (MAGI) exceeds $265,080, and fully phases out at $305,079.
Why Staying Updated Matters
Understanding and applying annual COLA changes is essential to effective benefits management. Accurate plan updates help organizations:
Maintain compliance
Reduce tax exposure
Strengthen total compensation offerings
Enhance employee satisfaction and retention
If you need support interpreting the new IRS guidance, updating plan documents, or evaluating how these changes impact your organization, our team is here to help.
Berndt CPA LLC
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