- How Will Having Less Taxes Taken Out of My Paychecks Affect My Income Taxes?
- How to Fill Out a W-4 If I Want a Tax Refund
- Why Is Married Withholding Better?
- Can I Get a Tax Refund if No Fed Taxes Were Taken out of My Paycheck During the Year?
- Are You Penalized for Not Having Federal Taxes Withheld for Unemployment Benefits?
- Tax Deduction for a Non-Working Spouse
Your gross salary is susceptible to mandatory and voluntary deductions, which reduce your take-home earnings. If you're under financial constraints, increasing your paycheck throughout the year might remedy the situation. This strategy also comes in handy if you want to increase your nonretirement savings.
Federal Income Tax
Federal income tax withholding is based on the number of allowances and filing status you claim on your Form W-4 and on the Internal Revenue Service tax-withholding tables. Go through your W-4 to ensure you claimed all of the allowances you're entitled to. An increase in allowances reduces your taxable wages and, ultimately, your federal withholding. Also, claiming married status puts you in a lower tax bracket than single status. If applicable, complete a new form and give it to your employer. For example, you're single and contribute more than 50 percent of the cost to maintain a home for you and your dependents. You can increase your allowances by claiming "head of household" on line E of the W-4.
If your state's income tax-withholding process is similar to the federal one, go through the relevant state withholding form to ensure you claimed all of the allowances you qualify for. Increasing your allowances reduces your state tax withholding. If necessary, fill out a new form and give it to your employer. If your state requires tax withholding at a flat rate for all employees, you cannot reduce your withholding using this process.
Section 125 Plans
When you a have an employer-sponsored benefit that meets the regulations of Section 125 of the Internal Revenue Code, you do not pay federal income tax, Social Security tax or Medicare tax on your premiums. State income tax might not apply, either. Such plans may include medical and dental coverage as well as reimbursement accounts for health care and dependent care. If your plan is not pretax, your premiums are taxable at the time of payment. If applicable, consider participating in your employer's Section 125 plan.
Pretax Retirement Plan
A traditional 401(k) retirement plan gives you a federal tax break. You pay Social Security and Medicare taxes on your contributions but not federal income tax. Your state might not require state income tax withholding on your contributions, either. Once you opt for a Roth 401(k), which you fund with after-tax dollars, you cannot switch to your employer's pretax traditional plan. Therefore, if you know upfront that you need to increase your take-home pay during the year, choose your employer's traditional plan during enrollment.
Go through all of your voluntary deductions and ensure you're paying only for what you need. For example, your health care plan might include lower-cost selections than your current rate. During your company's open-enrollment period, choose the options that best suit your budget and health needs. You may also lower your 401(k) contributions. Do this only if necessary because you could end up losing out on your company's full match. For example, a company might match 5 percent of your contributions up to a certain dollar amount.