Flexible Spending Accounts: How an FSA Works

And How to Make it Work for You

Flexible Spending Account: How an FSA Works2019-11-07T10:48:49-05:00

What is an FSA and how does it work?

Flexible spending accounts (FSA) are a great tool for helping you manage your health care budget. Flexible spending accounts give you the ability to use pre‐tax dollars to pay for qualified medical or dependent care expenses.

You choose how much money to contribute to your health care FSA, within limits, and you choose what qualified expenses to spend your FSA funds on and when to spend them.

Log In to Your CYC Account
How Does a FSA Work Video Thumbnail

FSA contribution limit for 2020:



Some health care flexible spending accounts come with a rollover options allowing you to move up to $500 from the previous year’s FSA into your FSA for the current plan year. That will keep you from losing those unspent funds at the end of the year.

If you are unsure if your FSA offers the rollover feature, consult your benefits documentation and/or your employer’s benefits specialist.

FSA Questions Answered

A flexible spending account (FSA) is a tax-advantaged health care account.  You contribute to an FSA with pre-tax dollars deducted from your payroll, and you can withdraw FSA funds for eligible medical expenses. This account may have a carryover amount from year to year, but typically FSA funds are “use it or lose it,” so be sure to plan as accurately as possible for your qualified health expenses.

For a list of approved health care expenditures, please refer to our FSA Eligible Expenses page.

Both FSAs and HSAs help you pay for eligible expenses using pre-tax contributions and offer financial benefits, but there are important differences to know. Some of these include:


  • If offered by the employer, you can open an FSA Health Care Plan with any insurance plan.
  • To be eligible to contribute to an HSA, you much be enrolled in a High Deductible Health Plan (HDHP). (See our FAQ page for a HDHP definition.)

Usage Deadlines

  • FSAs have historically been “use it or lose it” plans, meaning you may have to spend all funds within the calendar year. However, employers do sometimes offer a grace period — up to 2.5 months after the end of the year — or a rollover option — max of $500 year-to-year. Check with your employer for plan details.
  • There is no expiration on funds in an HSA. Unused contributions are not forfeited at the end of the year.

Account Ownership

  • An FSA is owned by the employer. Typically, unused FSA funds return to the employer after you separate from the company. In some cases, COBRA continuation coverage is available that will allow you to continue using FSA funds after separating from the company.
  • An HSA is owned by the employee. As a result, HSA funds are yours to keep in the event you separate from your employer.

For more on FSA vs. HSA, check out the Health Account Comparison page. And remember to always consult with the employer’s benefits specialist to get information about your company’s FSA options.

There are several different types of flexible spending accounts available, so if you are unsure which FSA plan your employer offers, please consult your benefits department.  The types are:

  • The Health Care FSA covers all IRS-approved expenses, including deductibles, co-pays, prescription drugs, select dental and vision care expenses, and many other items.
  • Limited Purpose FSA is combined with a health reimbursement arrangement (HRA) or health savings account (HSA) and covers vision and dental expenses only.
  • Dependent Care Assistance Program (DCAP) — also known as a Dependent Care FSA — covers employees’ dependent care expenses while they work.

Qualified medical expenses are defined as: copayments or coinsurance, dental care costs, vision care costs, prescriptions medications, and some over-the-counter medications. Your employer may limit what expenses your plan reimburses; please contact your Human Resources office for more information. For a general list of approved health care expenditures, please refer to the Qualified Medical Expenses list.

Get the answers to more Frequently Asked Questions.

Make the Most of Your FSA

FSA Academy
FSA Store
FSA Store

Financial Advantages of Flexible Spending Accounts

  • Contributions to an FSA are made pre-tax, reducing your overall taxable income.

  • Pay for hundreds of eligible expenses for tax-free purchase with your account funds, including prescriptions, doctor’s office copays, health insurance deductibles, coinsurance, some over-the-counter (OTC) medications, and much more.

See How Much You Can Save with an FSA

Calculate Potential Savings

FSA Payment Cards

If your employer offers a payment card for your FSA, you’ve got convenience!

You can use your ConnectYourCare payment card to pay for eligible expenses at the pharmacy, physician, dentist, online, and beyond. Visit the CYC Marketplace for links to several online retailers with FSA-eligible items as well as special offers for ConnectYourCare account holders.

Using your card also automatically creates an activity history you can refer to in the future and reduces or eliminates the need to fill out manual paper claim forms.

Learn More

Happy Employee ConnectYourCare Payment Card
FSA for Dummies Cover Thumbnail
HSA for Dummies eBook Offer

Resources & Tools


Download myCYC

Manage claims on the go with the myCYC mobile app — available in iTunes and Google Play

Get the App


Manage Your FSA

Take control of all your ConnectYourCare benefits with the easy-to-use online portal

Log In

Customer Service

Get Help 24/7

Based in the US, our customer care experts are ready to help resolve any issue, any time

Contact Us


Estimate Savings Potential

See how contributing to an FSA now can help your money go a lot further.

Learn More

Eligible Expenses

Find FSA-Eligible Items

Check out the eligible expenses list to see how you can save with an FSA

Explore Items


Buy FSA-Eligible Items

We’ve launched CYC Marketplace to help you make FSA-eligible purchases online

Start Shopping

Our Latest Resources

Our Latest Blog Posts

CYC has updated our Privacy Policy. You can review the updated language here. By continuing to use this site, you agree to our Privacy Policy and End User Terms of Use Privacy Policy and Terms of Use. Agree