IRS Sets 2027 Limits: Health FSA $3,500, Transit $350, 1099 Threshold $2,100, and the $400 Award Cap Stays Frozen
On November 5 the IRS published Revenue Procedure 2026-35, the annual list of inflation-adjusted figures for 2027. Most coverage leads with tax brackets and the standard deduction. For people who run benefits and rewards, the more useful lines are further down: the cafeteria-plan, commuter, education and adoption exclusions all go up, the Form 1099 threshold is indexed for the first time, and the achievement-award limits that govern service and safety awards do not move at all.
What the IRS published
The IRS announced 2027 adjustments for almost 70 tax provisions. The headline numbers for employees' own returns: the standard deduction rises to $16,600 for single filers (from $16,100 in 2026, per last year's Rev. Proc. 2025-32) and to $33,200 for married couples filing jointly (from $32,200). In the announcement, IRS Chief Executive Officer Frank J. Bisignano put it this way:
“American individuals and businesses will see increased tax benefits next tax year.”
Below is every line in the procedure that touches what an employer can give staff without adding to their taxable wages, set against the 2026 figure from last year's Rev. Proc. 2025-32.
| Item (Code section) | 2026 | 2027 | Change |
|---|---|---|---|
| Health FSA salary reduction (§ 125(i)) | $3,400 | $3,500 | +$100 (+2.9%) |
| Health FSA maximum carryover | $680 | $700 | +$20 |
| Transit pass / commuter vehicle, per month (§ 132(f)(2)(A)) | $340 | $350 | +$10 (+$120 a year) |
| Qualified parking, per month (§ 132(f)(2)(B)) | $340 | $350 | +$10 (+$120 a year) |
| Educational assistance (§ 127(a)) | $5,250 | $5,400 | +$150 (+2.9%) |
| Adoption assistance (§ 137) | $17,670 | $18,250 | +$580 (+3.3%) |
| Information-reporting threshold (§ 6041(a)) | $2,000 | $2,100 | +$100 (+5.0%) |
| Achievement awards, non-qualified / qualified plan (§ 274(j)) | $400 / $1,600 | $400 / $1,600 | Not indexed |
Changes and percentages are our own arithmetic on the two revenue procedures. The annual figure for commuter benefits is simply twelve months of the monthly limit: $4,200 in 2027 against $4,080 in 2026.
Two lines that are new this year
Both come from the 2025 budget law, the One, Big, Beautiful Bill Act. Last year's procedure explained that the act made student-loan repayment a permanent part of tax-free educational assistance and that the $5,250 cap would be adjusted for inflation for years after 2026. Rev. Proc. 2026-35 delivers the first adjustment: $5,400.
The second is the reporting threshold. The act raised the § 6041(a) threshold to $2,000 for payments made after December 31, 2025 and pointed the § 6041A rule for payments for services at the same figure. For payments made in calendar year 2027 the threshold is $2,100. That matters to anyone who rewards people who are not on payroll: referral partners, resellers, freelance brand ambassadors, survey panels.
Three questions we expect from HR and finance
The gift tax exclusion is now $20,000. Can we use it for employee gifts?
No. The $20,000 figure (up from $19,000) is the annual exclusion under § 2503, the federal gift tax, which the procedure lists separately from the employee exclusions under §§ 125, 127, 132(f) and 137. Nothing in it changes Publication 15-B's rule that cash and cash equivalents given to employees, whatever the amount, are never excludable as a de minimis benefit.
Does the $2,100 threshold make small rewards to contractors tax-free?
No. It is a reporting threshold: below it, the payer does not have to file the information return for that payee. The recipient's income is still income. What it changes is admin — a partner who receives $2,050 of gift card rewards across 2027 falls under the line, while one who receives $2,150 does not. Track rewards per payee across the whole calendar year, not per send.
When do the new numbers apply?
The procedure applies the benefit limits to taxable years beginning in 2027 and the reporting threshold to payments made in calendar year 2027. It also warns that if Congress amends the Code for 2027 after its release, taxpayers should check whether these adjustments still apply.
What to do before January
- Update open-enrollment and commuter communications. If 2027 materials still quote $3,400 and $340, they are out of date. Plans that allow carryover can raise it to $700, but only if the plan document says so.
- Rethink the education budget line. Educational assistance is one of the few tax-free benefits that is now indexed. If you were weighing a cash bonus against tuition or student-loan help, $5,400 per employee can be delivered without adding to wages.
- Keep gift card awards in payroll. The frozen $400/$1,600 caps never applied to them; budget gift card rewards as wages, with employer payroll tax on top, and gross up if staff should receive the face value.
- Log rewards to non-employees by person and year. The $2,100 line is an annual total per payee, so a per-campaign spreadsheet will not tell you who crossed it.
For the full treatment of gift cards to staff, see our guide to how the IRS taxes gift cards to employees; to price a reward that lands at face value, use the gift card tax gross-up calculator, and to check a tangible service or safety award against the $400 and $1,600 caps, the achievement award tax checker. The Social Security side of 2027 payroll cost is covered in our story on the $192,300 wage base, and the CFO framework for a rewards budget shows where these lines fit. Teams sending rewards at volume can issue them through the bulk gift card API and use the analytics dashboard to report reward totals by recipient and period.
Sources
- Internal Revenue Service, “IRS releases tax inflation adjustments for tax year 2027,” IR-2026-133 (November 5, 2026) — number of provisions, standard deduction, FSA, commuter, gift tax figures, the Bisignano quote. irs.gov/newsroom
- Internal Revenue Service, Rev. Proc. 2026-35 (released November 5, 2026), sections 1, 3.15–3.18, 3.20, 3.46 and 3.52 — every 2027 figure in the table. irs.gov/pub/irs-drop/rp-26-35.pdf
- Internal Revenue Service, Rev. Proc. 2025-32, sections 2.09, 2.15 and 3 — the 2026 comparison figures and the OBBBA changes to §§ 127 and 6041. irs.gov/pub/irs-drop/rp-25-32.pdf
- Internal Revenue Service, Publication 15-B (2026), Employer's Tax Guide to Fringe Benefits — the $400/$1,600 achievement award limits, the gift card carve-out, cash equivalents never de minimis. irs.gov/publications/p15b
- Jason Bramwell, “IRS Adjusts Tax Brackets, Standard Deduction for Tax Year 2027,” CPA Practice Advisor (November 5, 2026) — independent report of the standard deduction, FSA and commuter figures. cpapracticeadvisor.com
This article summarises published federal guidance and is not tax advice. State rules can differ, and plan documents decide whether higher limits or carryovers apply to your employees. Confirm with your payroll provider or tax adviser before changing benefits or reward reporting.
About the author
Maciej has worked in the digital gift card and rewards industry for over 5 years. For this story he read the IRS announcement and the full text of Rev. Proc. 2026-35 on November 6, 2026, compared each employer-facing line with Rev. Proc. 2025-32 and Publication 15-B, and calculated the year-on-year changes.