Preparing for 2026: Five payroll limits to watch this new year

Before you know it, the holidays will be upon us! Amidst the activities of the coming months, there are also payroll and benefit topics to put on your radar. As we prepare for a new year, we made you a list to check twice, ensuring you and your organization start 2026 informed and up to date with the coming changes.

Each year, contribution and tax limits change. As a best practice, the payroll and benefit departments in every organization should review and assess the impact on their individual processes and configurations. The figures below are projected until the IRS and Social Security Administration release the final data.

Pension contribution limits

• 401k, 403b and 457 contributions will increase $1,000 for a maximum of $24,500.
• Over 50 catchups for these plans will increase $500 to $8,000.
• As a part of Secure 2.0, if an employee is 60 - 63 years of age, an additional “Super” catch-up provision of $11,250 applies. Individuals with Federal Insurance Contributions Act (FICA) income of $145,000 or greater in 2025 are considered high wage earners and will be required to make the additional catch up to an after-tax Roth instead of a pretax deferral.
• The combined employee + employer contributions are projected to increase to $72,000.
• Verify these limits in Oracle by navigating to the calculation value definitions under the quick actions.

Social security wage limit

• While the social security rate of 6.2% will not change, the covered compensation will change to $183,600. This is an annual increase of $7,500. The maximum social security tax will be $11,383.20 for employees and employers in 2026.
• The Medicare rate remains the same at 1.45% with no limit on covered compensation.
• Additional Medicare Tax rate remains at 0.9% for wages over $200,000 if filing single and $250,000 for joint filers.
• Oracle’s best practice is to test the new limits in a non-production environment in January.

Health Savings Account (HSA limits)

• Self-only election limit has increased to $4,400.
• The family election limit has increased to $8,750.
• Catch-up contributions for those employees who are 55 and older remain at $1,000 beyond the set limits for 2026.
• Oracle Cloud allows you to effectively track contributions to ensure alignment with requirements. When configuring these limit increases in Oracle benefits, this should be done in the HSA calculator common lookups as well as in the HSA enrollment rate configuration to ensure contributions will track against maximums.
• If these rates were not known prior to the open enrollment (OE) period, in a non-production environment, test the best way to apply them by reprocessing the OE life event for those who enrolled during the period or by processing a post OE life event with a rate effective date of the beginning of the first pay period in the new year. Then apply the solution to your production environment. Reach out to Baker Tilly if you’d like guidance on how to ensure limit increases are being captured in enrollments already made.

Flexible Spending Accounts (FSA limits)

• Health Care Flexible Spending Account (HCFSA) limits have increased to $3,400.
• HCFSA rollover limit is increased $20 to $680 for 2026.
• Dependent Care Flexible Spending Account limits will increase to $7,500. For married couples filing separately, the limit will be $3,750.
• When configuring these limits in Oracle, this should be done in the FSA calculator common lookups as well as in the FSA enrollment rate configuration itself.

Transit and parking pretax

• Transit and parking accounts pre-tax monthly contributions are increasing $15 to $340 each.

We’re here to help

Baker Tilly recommends that an organization review the limits for custom pension plans with the governing body and make configuration changes appropriate to the new limits. Early testing and analysis for custom pension plans is a key factor in successful 2026 processing.

Should you have any questions or need assistance in navigating payroll year end or the new Oracle tax engine, don’t hesitate to reach out to us at Baker Tilly! Since 2006, our Oracle practice has been transforming business and process for clients ranging from mid-market companies to Fortune 50 firms using Oracle Cloud’s enterprise solutions. Learn more!