New Fringe Benefit Numbers, Other IRS Changes for 2026

The amounts you can exclude from an employee’s gross income for certain fringe benefits will increase for 2026, IRS announced.

As you know, fringe benefits are generally subject to income tax withholding as well as Social Security and Medicare taxes, unless they meet IRS requirements for exclusion from income.

And for many fringe benefits, the dollar amounts change each year based on the cost-of-living adjustment (COLA).

Revenue Procedure 2025-32 contains those dollar amounts.

Here are some highlights:

Offering Fringe Benefits

First, the limit on pretax deductions for health flexible spending arrangements (FSAs) is going up.

Employees will be able to contribute up to $3,400 through salary reductions next year, IRS said. Currently, the limit for this fringe benefit is $3,300.

If your cafeteria plan allows employees to carry over unused FSA amounts, take note of the new maximum amount you can allow for 2026: It’s $680 (up from $660 this year).

Companies with fewer than 50 full-time employees may consider offering qualified small employer health reimbursement arrangements (QSEHRAs).

With a QSEHRA, the total amount of payments and reimbursements can’t exceed $6,450, or $13,100 for family coverage (that’s up from $6,350 and $12,800, respectively).

Employers should also take note of the monthly limits for qualified transportation fringe benefits (QTFBs). They’ll also increase in 2026.

If you provide QTFBs, the aggregate exclusion for transportation in a commuter highway vehicle and any transit pass will be $340 per month (up from $325). Likewise, for qualified parking, the monthly limit will be $340 (up from $325).

For employers that have a qualified adoption program, the amount excludable from gross income will be $17,670 (currently it’s $17,280).

That amount begins to phase out if the taxpayer has a modified adjusted gross income of more than $265,080 (now, $259,190). It’s completely phased out at $305,080 (now, $299,190).

For periodic payments received under qualified long-term care insurance contracts or under certain life insurance contracts, the limit on the amount of per diem payments for care will be $430 in 2025. That’s up from $420.

Another fringe benefit some employers choose to offer is medical savings accounts (MSAs). The 2026 COLA affects the high deductible health plans associated with MSAs. Here are the numbers:

• Self-only coverage: the deductible range must be between $2,900 and $4,400, and the maximum out-of-pocket expenses have been set at $5,850, and
• Family coverage: the deductible range must be between $5,850 and $8,750, and the maximum out-of-pocket expenses have been set at $10,700.

Reminder: The IRS released the updated numbers for health savings accounts earlier in the year. They’ll also be increasing for inflation once the new year begins.

2026 Income Tax Withholding

In addition to fringe benefits, other updates included in Revenue Procedure 2025-32 will allow you to update your payroll system for 2026.

The federal income tax rate tables have been adjusted for inflation. Meanwhile, the applicable rates remain the same (10%, 12%, 22%, 24%, 32%, 35% and 37%), thanks to the One Big Beautiful Bill Act (OBBBA).

Here’s a peek at some information found on the tax rate tables.

The lowest rate of 10% will apply to taxable income up to:

• $12,400 if filing single or married filing separately
• $17,700 if filing head of household, and
• $24,800 if married filing jointly.

As for the top rate of 37%, it’ll kick in when taxable income exceeds:

• $384,350 if married filing separately
• $640,600 if filing single or head of household, and
• $768,700 if married filing jointly.

The standard deduction for 2026 will be higher than it otherwise would be. That’s due to the OBBBA. Here are the 2026 amounts, based on filing status:

• $16,100 – if filing single or married filing separately
• $24,150 – if filing head of household, and
• $32,200 – if filing married filing jointly.

The revenue procedure also noted that the OBBBA increased the standard deduction for 2025. Here are the amounts that were in place when 2025 began and the increased 2025 amounts due to the OBBBA:

• Single or married filing separately filing status went from $15,000 to $15,750
• Head of household filing status went from $22,500 to $23,625, and
• Married filing jointly filing status went from $30,000 to $31,500.