4 Ways You Can Use a Job to Lower Your Income Taxes

The deadline for filing this year’s tax return is right around the corner. But if you want to get a head start on next year’s taxes, there are things you can do at work that might help reduce what you owe to the government in 2025.

These are simple but sometimes overlooked actions that lower your taxable income in one way or another.

Not everyone can — or wants to — benefit from making these moves. But for millions of taxpayers, putting one or more of these changes into place might result in a happier Tax Day next year.

1. Contribute to a 401(k)

Saving for retirement is a challenge, especially in these days of rising costs. But if you can find the room in your budget, contributing to a traditional 401(k) plan or a similar retirement vehicle at work is a powerful way to lower your tax bill.

Here are the 401(k) contribution limits for 2024:

• $23,000 for workers under the age of 50
• $23,000 plus a $7,500 catch-up contribution for workers 50 and older

Of course, it’s important to remember that you are only temporarily putting off the day of reckoning: Eventually, you will have to pay the tax bill during retirement.

But with any luck, you will be in a lower tax bracket then and will end up paying less in taxes than if you had paid the taxes upfront.

If your workplace allows it, another option is to make a Roth contribution to your 401(k) plan. With this type of contribution, you pay taxes right away, so you won’t lower your tax bill in 2025. However, the money will remain untaxed for the rest of your life, no matter how big your account grows.

2. Contribute to an HSA

Health savings accounts are among the most overlooked tools for lowering your tax bill. As we have previously noted, HSAs offer triple tax advantages:

“You can deposit pretax earnings in an HSA, meaning you get a tax deduction for contributions in the tax year for which you make them. Additionally, your deposits grow tax-free, and you can withdraw money tax-free, provided that you use it for qualifying medical expenses.”

That means that in most cases, you will never pay any taxes on money that goes into an HSA.

During 2024, the contribution limits for HSA plans are:

• $4,150 for someone with self-only health insurance coverage
• $8,300 for someone with family coverage

If you are 55 or older, you can contribute another $1,000 in catch-up contributions.

Just remember that to be eligible to contribute to an HSA, you will need to be enrolled in an eligible high-deductible health insurance plan.

3. Contribute to a health FSA

If you don’t have a high-deductible health plan — and thus are not eligible to contribute to an HSA — your workplace might offer the option of contributing to a flexible spending account, or FSA.

These plans — which the IRS refers to as “flexible spending arrangements” — allow you to build a pool of money through payroll deductions that you can use to pay medical expenses.

This money is not subject to federal income tax or Social Security and Medicare taxes. For 2024, employees can contribute $3,200 to an FSA.

4. See if your workplace has dependent care benefits

Some employers offer dependent care benefits to their workers. This type of benefit can lower your taxes, typically by qualifying you for a tax deduction or enabling you to exclude your employer’s contribution to your child care expenses from your taxable income.

That contribution can only be used to cover costs that allow you to work, though. It’s not meant to cover a babysitter for a Saturday night out.

Often, this type of benefit is called a dependent care FSA or dependent care assistance program. The IRS offers more guidance in Publication 503, “Child and Dependent Care Expenses.”