How To Save Money On Taxes With Your Employee Benefits
What can I do to stop writing a check to the IRS every April 15th?
1. Adjust Your Payroll Tax Withholdings To Lower Your Taxes
OK, so this one is not an employee benefit, but it’s an easy way to pay fewer taxes, so I threw it in the mix. If you get big refunds, consider adjusting your withholdings to lower how much you pay the IRS, which can increase your paycheck.
You do this by completing either an IRS Form W4 or your employer’s online form. The IRS form recently changed, making it easier to complete. You can even use the IRS Tax Withholding Estimator to help you complete the form.
2. Increase Your pre-tax retirement plan contributions
Your employer retirement plan contributions are one of the few tax deductions you get to keep. Since the money can come out pre-taxed, a retirement plan can help you pay fewer taxes. You can typically contribute up to $19,500 (an extra $6,500 for anyone age 50+) for 2021 (unchanged from 2020) to most 401k plans.
The money grows tax-free but is taxable when you withdraw the money, which most people do when they retire. On average, most people are in a lower tax bracket in retirement, so the potential tax impact may be minimal.
3. Put money into your employer’s Pre-tax Medical Savings Plan to lower your taxes.
The most likely expense for your family is medical-related. It may be a doctor’s visit, braces, or glasses. Since you have to pay for these items anyway, you might as well use your employee benefits to pay fewer taxes.
Take full advantage of medical savings accounts offered through your employer, like a Flexible Spending Account (FSAs) or Healthcare Savings Accounts (HSAs).
4. Contribute To Your Dependent Care Flexible Spending Account
Similar to the medical savings accounts, if you have to pay for the care of dependents, you might as well get a tax benefit out of it. A Dependent Care Flexible Spending Account (FSA) allows you to pay for some of your dependent expenses pre-taxed.
The funds can come out tax-free as long as you use the funds for qualifying dependent care expenses for children under 13 ( or incapable of self-care) like daycare, summer camp, and before and after school care. This benefit also extends to the care of adult dependents, like elderly relatives you claim on your tax return.
5. Use Your Commuter BENEFIT Savings Account
Commuting to work (if you still remember) is a pain, let alone parking costs. If your employer offers a pre-tax transportation benefit and pays for parking or transit, consider contributing to a commuter benefit savings account.
IN CONCLUSION
Your employee benefits are the most often overlooked place to save money on taxes. Review your employee benefits for pre-tax options and use your benefits strategically to lower your taxable income.
Commit to doing one thing to lower your taxable income. Combine goals. If your goal is to save more for retirement, you can simultaneo
