IRS Announces 2026 Cost-of-Living Adjustments for Employee Benefits and ACA Limits

The IRS has announced the 2026 cost-of-living adjustments (COLAs) for various limits, thresholds, and penalties that impact employee benefit plans, retirement accounts, and health-related savings programs in the U.S. These adjustments affect 401(k), 403(b), defined contribution and defined benefit plans, Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), and Affordable Care Act (ACA) related provisions. The updates reflect inflation-driven increases aimed at maintaining the real value of tax-advantaged benefits and plan limits. In the retirement plan landscape, the annual deferral limit for 401(k) and 403(b) plans rises by $1,000 to $24,500 for 2026, with catch-up contributions for those aged 50 and over increasing to $8,000. Defined benefit plan limits on annual benefits have also increased to $290,000. The annual compensation limit considered for qualified plans has been raised to $360,000, up $10,000 from the previous year. Health Savings Account parameters have been increased, with individual contributions capping at $4,400 and family contributions at $8,750. The minimum deductibles and maximum out-of-pocket expenses for high-deductible health plans (HDHPs) tied to HSAs have also been raised. Flexible Spending Accounts (FSAs) have seen incremental increases in contribution limits and maximum carryover amounts. The dependent care FSA contribution limit for married filers jointly or heads of household has notably increased to $7,500. The IRS also announced adjustments in Affordable Care Act (ACA) related metrics. The out-of-pocket maximums for non-grandfathered health plans have been significantly increased for individuals ($10,600) and families ($21,200), impacting plan design and compliance for health insurers and employers. Affordability thresholds under the ACA have risen to 9.96%, which may influence employer shared responsibility calculations. Additionally, penalties related to ACA coverage, reporting, and filing infractions have been adjusted upward. Premium rates for the Pension Benefit Guaranty Corporation (PBGC) show increases as well, including participant flat rates and per participant variable caps in single employer plans. Multiemployer plan premiums have increased slightly, reflecting cost-of-living adjustments. Other deferred compensation and involuntary separation pay thresholds under Section 409A and related provisions have also seen increases. These annual updates incorporate various regulatory compliance thresholds that benefit plan sponsors, administrators, and insurers overseeing employer-sponsored pension, health, and welfare plans. Staying current with these COLAs is critical to maintaining compliance with IRS guidelines, optimizing plan design, and managing fiduciary and operational risks effectively in 2026.