IRS Sets 2027 Benefit Limits: What Payroll Must Update Now

The IRS has released inflation adjustments affecting almost 70 tax provisions for 2027, and payroll teams face their most time-sensitive deadline immediately: open enrollment materials must reflect the new limits before employees finalize elections. The guidance came in Rev. Proc. 2026-35, which sets the 2027 health FSA employee contribution limit at $3,500, up $100 from the prior year.

That figure carries a companion number employers should not overlook. Where plans permit carryovers, employees may roll up to $700 in unused 2027 funds into the 2028 plan year. Both figures need to appear correctly in enrollment systems and payroll deduction settings, or employers risk processing errors that surface after elections close.

What changes for health accounts?

The health FSA limit of $3,500 applies to employee contributions. The carryover ceiling of $700 applies only where the plan document allows it, a distinction that matters for plans operating on grace-period rules instead.

HSA limits arrived earlier in the year: $4,500 for self-only coverage and $9,000 for family coverage. Employees age 55 or older can add $1,000 in catch-up contributions. The source flags a specific configuration risk here: 2027 payroll settings must count employee deductions and employer contributions together toward those limits. A system that tracks only one side will silently permit excess contributions.

The takeaway: verify both FSA and HSA figures against enrollment materials and payroll settings before elections close.

When do withholding tables arrive?

The 2027 tax brackets and standard deduction are final, but the IRS has not yet published the withholding tables. Those will appear in Publication 15-T, and payroll departments should plan their January update cycle around that release.

The source recommends a concrete step: ask your payroll vendor when the final 2027 withholding update will ship, then schedule a test before the first January payday. That test matters because a January payday often falls within the first week of the month, leaving little room to correct a failed update.

The takeaway: calendar the withholding update now rather than waiting for the IRS publication.

Which other employer limits moved?

The adjustments extend beyond health accounts:

• Commuter benefits: monthly tax-free limits rise to $350 for transit and commuter vanpool benefits combined, and $350 separately for qualified parking, up $10 each. Amounts above those caps generally count as taxable wages.
• Educational assistance: the annual exclusion rises to $5,400.
• Adoption assistance: the exclusion increases to $18,250.
• QSEHRA: employers with a qualified small employer HRA can reimburse up to $6,700 annually for self-only coverage and $13,550 for family coverage.

Each of these figures touches a distinct people process. Commuter caps require payroll deduction adjustments; educational and adoption assistance exclusions require coordination with finance on taxable wage reporting; QSEHRA ceilings require benefits administrators to reset reimbursement maximums.

The takeaway: none of these figures updates itself, so each needs a named owner before January.

What should payroll do first?

The source lays out a three-step sequence:

1. Before open enrollment closes, confirm FSA and HSA enrollment materials match plan limits and payroll settings.
2. Ask your vendor when the final 2027 withholding update will be ready, and schedule a test before the first January payday.
3. Review commuter deduction caps and coordinate educational assistance, adoption assistance and QSEHRA updates with your benefits administrator.

The ordering reflects urgency rather than importance. Health account elections are happening now, withholding arrives in January, and the remaining limits fall somewhere between.

One item sits outside this guidance: retirement plan limits were announced separately, and employers should consult that distinct release rather than assume Rev. Proc. 2026-35 covers them.

Employers that sequence these updates against their enrollment calendar, rather than treating the nearly 70 provisions as a single January project, will face fewer corrections when the first paychecks of 2027 run.