Highlights of 2026 Fringe Benefit COLAs for Employers
The IRS annually updates a range of employer-provided fringe benefit limits to keep pace with inflation. These cost-of-living adjustments (COLAs) affect compensation strategy, employee benefits design and payroll administration. As we look ahead to the new year, now’s a good time to review the changes to help your organization budget accurately and communicate effectively with employees. Here are some highlights applicable to 2026:
Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs). The maximum payments and reimbursements under a QSEHRA will be $6,450 for self-only coverage and $13,100 for family coverage (up from $6,350 and $12,800, respectively).
Pension-Linked Emergency Savings Accounts (PLESAs). The SECURE 2.0 Act authorized the addition of PLESAs to eligible employer-sponsored defined contribution plans, such as 401(k)s. These accounts allow participants to save for financial emergencies, so they don’t have to draw from their retirement savings following a crisis. The contribution limit to PLESAs will be $2,600 (up from $2,500).
Qualified transportation fringe benefits. The monthly limit on the amount that may be excluded from an employee’s income for qualified parking benefits will be $340 (up from $325). The combined monthly limit for transit passes and vanpooling expenses will also be $340 (up from $325 as well).
Health Flexible Spending Accounts (FSAs). The dollar limit on employee salary reduction contributions to health FSAs will be $3,400 (up from $3,300). If a cafeteria plan allows carryovers of health FSA balances, the maximum unused amount that health FSA participants can carry over to the following plan year will be $680 (up from $660) for plan years beginning in 2026.
Qualified education loan repayments. The One Big Beautiful Bill Act (OBBBA), enacted in July, made permanent the exclusion for employer-provided payments toward qualified education loans. The maximum exclusion amount will be $5,250, subject to inflation adjustments in future years.
Benefits under a dependent care assistance program (DCAP). The DCAP limit isn’t adjusted for inflation, but it has changed. The OBBBA increased the maximum annual exclusion to $7,500 per return or $3,750 for married individuals filing separately (up from $5,000 and $2,500, respectively). These dollar amounts will apply in future years, too, unless Congress changes them.
That said, some adjustments to certain general tax limits are relevant to calculating one’s federal income tax savings under a DCAP. These include the 2026 tax rate tables, earned income credit amounts and the standard deduction.
Adoption assistance exclusion and adoption credit. Under an employer-provided adoption assistance program, the maximum amount that may be excluded from a participant’s gross income for adopting a child will be $17,670 per child (up from $17,280). The maximum adoption credit a participant may claim will also be $17,670 per child (also up from $17,280).
The adoption exclusion and credit are subject to an income-based phaseout. The phaseout will begin to kick in when a participant’s modified adjusted gross income (MAGI) exceeds $265,080 (up from $259,190). The exclusion and credit will be entirely phased out for individuals with MAGI above $305,079 (up from $299,189).
Staying current with annual COLAs is an essential part of responsibly managing your organization’s fringe benefits. Make sure your team is fully aware of the updated limits to help ensure compliance, minimize tax exposure and strengthen overall compensation. We’d be happy to help you interpret the latest IRS guidance, update plan documents as needed and evaluate whether your current benefits continue to meet your workforce’s needs.
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