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

Advertising Disclosure: When you buy something by clicking links on our site, we may earn a small commission, but it never affects the products or services we recommend.

Worker holding money
Eduard Stelmakh / Shutterstock.com

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)

Piggy bank with 401k on the side, next to stacks of coins
DD Images / Shutterstock.com

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

Money for health care
Denys Kurbatov / Shutterstock.com

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

Online pharmacy or prescription order
chuckstock / Shutterstock.com

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

Happy mom and daughter
DisobeyArt / Shutterstock.com

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.”

Get smarter with your money!

Want the best money-news and tips to help you make more and spend less? Then sign up for the free Money Talks Newsletter to receive daily updates of personal finance news and advice, delivered straight to your inbox. Sign up for our free newsletter today.