Limited Purpose FSA: 2026 and 2027 Limit, Carryover and HSA Rules
A limited purpose FSA is a health FSA that pays only for items such as dental care, vision care and preventive care, so you can have one and still contribute to an HSA. Because it is a health FSA, the section 125(i) limit applies to it (our reading of section 125(i)): $3,400 for 2026 and $3,500 for 2027 (Rev. Proc. 2025-32 and Rev. Proc. 2026-35). The carryover your plan may allow is up to $680 from 2026 and up to $700 from 2027. Your employer decides whether to offer one and can set lower limits; this is general information, not tax advice.
Maintained by Archie Chang · Reviewed November 9, 2026 · Methodology & sources
These are the IRS maximums for a health FSA. Your employer decides whether to offer a limited purpose FSA, what it pays for and whether the plan has a carryover or a grace period. Read your plan document; this page is general information, not tax advice.
Limited purpose FSA limit and carryover by year
| Year | Salary reduction limit | Maximum carryover | Source |
|---|---|---|---|
| 2027 | $3,500 | $700 | IRS Rev. Proc. 2026-35, section 3.16 |
| 2026 | $3,400 | $680 | IRS Rev. Proc. 2025-32, section 3.15; Publication 15-B (2026) |
These are the same amounts as on FSA limits 2026 and FSA limits 2027, where the health FSA limit is explained. The carryover is optional for the employer: it is the most a plan may let you move into the next plan year, and a plan can set a lower amount.
The IRS states the 2026 and 2027 amounts like this:
“For plan years beginning in 2026, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $3,400.”
“If the cafeteria plan permits the carryover of unused amounts, the maximum carryover amount is $680.”
“For taxable years beginning in 2027, the dollar limitation under § 125(i) on voluntary employee salary reductions for contributions to health flexible spending arrangements is $3,500. If the cafeteria plan permits the carryover of unused amounts, the maximum carryover amount is $700.”
Is the limit the same as for a general purpose health FSA?
We read it as the same. A limited-purpose FSA is a health FSA, and section 125(i) limits the salary reduction contributions to “a health flexible spending arrangement”. Notice 2012-40 describes the limit as applying to salary reduction contributions under a health FSA, and not to other types of FSAs such as the dependent care FSA. We found no IRS document that gives a limited-purpose health FSA a dollar limit of its own.
“if a benefit is provided under a cafeteria plan through employer contributions to a health flexible spending arrangement, such benefit shall not be treated as a qualified benefit unless the cafeteria plan provides that an employee may not elect for any taxable year to have salary reduction contributions in excess of $2,500 made to such arrangement.”
“The statutory $2,500 limit under § 125(i) applies only to salary reduction contributions under a health FSA, and does not apply to certain employer non-elective contributions (sometimes called flex credits), to any types of contributions or amounts available for reimbursement under other types of FSAs, health savings accounts, or health reimbursement arrangements,”
The limit counts salary reduction contributions for each employee, and employers in a controlled group count as one. Notice 2012-40:
“if each of two spouses is eligible to elect salary reduction contributions to an FSA, each spouse may elect to make salary reduction contributions of up to $2,500 (as indexed for inflation) to his or her health FSA, even if both participate in the same health FSA sponsored by the same employer.”
“If an employee participates in multiple cafeteria plans offering health FSAs maintained by members of a controlled group or affiliated service group, the employee’s total health FSA salary reduction contributions under all of the cafeteria plans are limited to $2,500 (as indexed for inflation).”
A plan can set a lower maximum than the IRS limit.
What a limited purpose FSA pays for
Publication 969 explains a health FSA first, and then the narrower arrangement that works with an HSA:
“A health FSA allows employees to be reimbursed for medical expenses. FSAs are usually funded through voluntary salary reduction agreements with your employer.”
“However, an employee can make contributions to an HSA while covered under an HDHP and one or more of the following arrangements. […] Limited-purpose health FSA or HRA. These arrangements can pay or reimburse the items listed earlier under Other health coverage except long-term care.”
“You can also have coverage (whether provided through insurance or otherwise) for the following items. […] • Accidents. • Disability. • Dental care. • Vision care. • Long-term care. • Telehealth and other remote care.”
“Also, these arrangements can pay or reimburse preventive care expenses because they can be paid without having to satisfy the deductible.”
That puts dental care and vision care on the list, with long-term care removed, and adds preventive care. Self-employed people cannot have an FSA:
“Self-employed persons aren’t eligible for FSAs.”
Limited purpose FSA and HSA eligibility
A general purpose health FSA generally blocks HSA contributions. A limited-purpose one does not. Publication 969:
“An employee covered by an HDHP and a health FSA or an HRA that pays or reimburses qualified medical expenses can’t generally make contributions to an HSA.”
“However, an employee can make contributions to an HSA while covered under an HDHP and one or more of the following arrangements. […] Limited-purpose health FSA or HRA. These arrangements can pay or reimburse the items listed earlier under Other health coverage except long-term care.”
Publication 15-B says the same in one sentence:
“an employee’s participation in a health FSA or HRA generally disqualifies the individual (and employer) from making contributions to their HSA. However, an individual may qualify to participate in an HSA if they are participating in only a limited-purpose FSA or HRA or a post-deductible FSA. For more information, see Other employee health plans in Pub. 969.”
Two other FSA types appear in the same part of Publication 969. A post-deductible health FSA does not pay until the minimum deductible is met, and Publication 969 says what happens to a general purpose health FSA during a grace period:
“Post-deductible health FSA or HRA. These arrangements don’t pay or reimburse any medical expenses incurred before the minimum annual deductible amount is met.”
“Health FSA—grace period. Coverage during a grace period by a general purpose health FSA is allowed if the balance in the health FSA at the end of its prior-year plan is zero.”
The Publication 969 text we read does not say how a carryover of a general purpose health FSA balance affects HSA eligibility, so ask your plan administrator before you rely on a carryover. A limited purpose FSA is only one of the HSA tests: you also need an HSA-eligible health plan and, for example, no Medicare. The contribution amounts are on HSA contribution limits 2026 and HSA contribution limits 2027.
Carryover and grace period
Unused money is forfeited at the end of the plan year unless the plan adds a grace period or a carryover, and not both. Publication 969:
“FSAs are generally “use-it-or-lose-it” plans.”
“However, the plan can provide for either a grace period or a carryover.”
“The plan can provide for a grace period of up to 2 1/2 months after the end of the plan year.”
“If the plan permits a carryover, any unused amounts in excess of the carryover amount are forfeited. The carryover doesn’t affect the maximum amount of salary reduction contributions that you are permitted to make. […] A plan adopting a carryover provision is not permitted to also provide a grace period with respect to health FSAs.”
The maximum carryover is a share of the limit. Notice 2020-33 sets it at 20 percent of the section 125(i) limit, which gives $680 for 2026 and $700 for 2027 in the revenue procedures above. Notice 2013-71 introduced the carryover, and Publication 15-B describes it:
“this notice increases the maximum $500 carryover amount for a plan year to an amount equal to 20 percent of the maximum salary reduction contribution under § 125(i) for that plan year.”
“This modification permits § 125 cafeteria plans to be amended to allow up to $500 of unused amounts remaining at the end of a plan year in a health FSA to be paid or reimbursed to plan participants for qualified medical expenses incurred during the following plan year, provided that the plan does not also incorporate the grace period rule.”
““Use-or-lose” rule for health FSAs. Instead of a grace period, you may, at your option, amend your cafeteria plan to allow an employee’s unused contributions to carry over to the immediately following plan year.”
For a dependent care FSA the rules differ; see the dependent care FSA page.
Highly compensated employees and key employees
The cafeteria plan rules limit what a plan can do for highly compensated employees and key employees. Publication 969 flags it in two places:
“Certain limitations may apply if you are a highly compensated participant or a key employee.”
“For the health FSA to maintain tax-qualified status, employers must comply with certain requirements that apply to cafeteria plans. For example, there are restrictions for plans that cover highly compensated employees and key employees.”
Who counts, and the 2026 dollar amounts, are on the highly compensated employee page.
Limited purpose FSA questions
What is a limited purpose FSA?
A limited-purpose health FSA is a health flexible spending arrangement that pays or reimburses only a short list of expenses so that the employee stays eligible to contribute to an HSA. IRS Publication 969 says these arrangements “can pay or reimburse the items listed earlier under Other health coverage except long-term care”, and that list is accidents, disability, dental care, vision care, long-term care and telehealth and other remote care. It adds that they can also pay preventive care expenses. Your employer decides whether to offer one and the plan document says what it pays for.
What is the limited purpose FSA limit for 2026?
$3,400. A limited-purpose FSA is a health FSA, and the 2026 health FSA limit under 26 U.S.C. 125(i) is $3,400 (IRS Publication 15-B: “For plan years beginning in 2026, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $3,400.”). We found no IRS document that sets a different dollar limit for a limited-purpose health FSA. Your plan can set a lower maximum.
What is the limited purpose FSA limit for 2027?
$3,500. IRS Rev. Proc. 2026-35, section 3.16, says: “For taxable years beginning in 2027, the dollar limitation under § 125(i) on voluntary employee salary reductions for contributions to health flexible spending arrangements is $3,500. If the cafeteria plan permits the carryover of unused amounts, the maximum carryover amount is $700.” The same reading applies: a limited-purpose FSA is a health FSA, and we found no separate 2027 amount for it.
Can I have a limited purpose FSA and an HSA?
Yes. Publication 969 says an employee covered by a high deductible health plan “can make contributions to an HSA while covered under an HDHP” and a limited-purpose health FSA, and Publication 15-B says an individual may qualify for an HSA “if they are participating in only a limited-purpose FSA or HRA or a post-deductible FSA”. A general purpose health FSA generally disqualifies you. Whether you also meet the other HSA tests (an HSA-eligible health plan, no Medicare, not a dependent) is a separate question; see the HSA pages linked below.
What does a limited purpose FSA pay for?
Publication 969 lists dental care and vision care among the items a limited-purpose health FSA can pay, along with accidents, disability and telehealth and other remote care, and says it can also pay preventive care expenses. Long-term care is excluded. Because the plan document sets the details, ask your plan administrator which expenses your plan reimburses.
Does a limited purpose FSA have a carryover or a grace period?
Only if your plan adds one. Publication 969 says “However, the plan can provide for either a grace period or a carryover.” and that a plan with a carryover cannot also have a grace period for health FSAs. The carryover maximum is $680 for 2026 (Rev. Proc. 2025-32) and $700 for 2027 (Rev. Proc. 2026-35), which is 20 percent of the section 125(i) limit under Notice 2020-33, and the plan can set a lower amount. The grace period is up to 2½ months.
Does the dependent care FSA limit apply to a limited purpose FSA?
No. The dependent care FSA is a different benefit with its own statutory limit in 26 U.S.C. 129. Notice 2012-40 says the section 125(i) health FSA limit applies to salary reduction contributions to a health FSA and not to other types of FSAs. See the dependent care FSA page for that limit.
Do highly compensated employees face limits on a limited purpose FSA?
They can. Publication 969 says: “Certain limitations may apply if you are a highly compensated participant or a key employee.” and, under employer participation: “For the health FSA to maintain tax-qualified status, employers must comply with certain requirements that apply to cafeteria plans. For example, there are restrictions for plans that cover highly compensated employees and key employees.” The highly compensated employee page explains who counts as one and lists the 2026 amounts.
Cite this page
Page title: Limited Purpose FSA 2026 and 2027: Limits and HSA Rules. Updated November 9, 2026. Canonical URL: https://fedratecalc.com/limited-purpose-fsa/
Data source: IRS Publication 969; IRS Publication 15-B (2026); IRS Rev. Proc. 2025-32; IRS Rev. Proc. 2026-35; IRS Notice 2012-40; IRS Notice 2013-71; IRS Notice 2020-33; 26 U.S.C. 125 (govinfo), compiled by FedRateCalc.
Plain-text citation
FedRateCalc. Limited Purpose FSA 2026 and 2027: Limits and HSA Rules. Updated November 9, 2026. https://fedratecalc.com/limited-purpose-fsa/HTML link
<a href='https://fedratecalc.com/limited-purpose-fsa/'>FedRateCalc</a>Related pages
Sources (checked November 9, 2026): IRS Publication 969 · IRS Publication 15-B (2026) · IRS Rev. Proc. 2025-32 · IRS Rev. Proc. 2026-35 · IRS Notice 2012-40 · IRS Notice 2013-71 · IRS Notice 2020-33 · 26 U.S.C. 125 (govinfo)