What Reduces the Amount of Money Withheld From Your Pay?
A person usually won't come close to depositing his entire pay amount into the bank. A string of recurring deductions can significantly reduce a person's take home pay. Some deductions are voluntary, while others are mandatory. However, a person can make some adjustments to reduce the amount of money withheld from pay.
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Federal Taxes
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Federal income taxes can take a big chunk of money out of paychecks. However, employees can reduce money withheld for federal taxes. Employees can make changes by filling out IRS Form W-4 -- Employee’s Withholding Allowance Certificate. By increasing the number of allowances or exceptions, the employee can force employers to withhold less money each payday for federal taxes. However, reducing the amount withheld does not reduce tax liability. A person who reduces his federal income tax withholding could face a tax bill during tax return season.
Life Insurance
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Some workers purchase life insurance through their employer. Making changes to the plan to reduce coverage could lower the cost and reduce the amount of money withheld from pay. However, employers usually only allow changes to life insurance and other benefit programs once a year. There are some exceptions, but usually not for the purpose of reducing money withheld from pay.
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Health Benefits
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Health insurance is also costly. During open enrollment periods employees can fill out paperwork reducing their coverage, leading to more money in their paychecks each pay period. Some workers may end coverage altogether because they are also covered under a spouse’s plan.
Retirement Plans
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Changes to voluntary retirement plans, such as a 401k can also reduce money withheld from pay. An employee aggressively planning for retirement may contribute to several retirement payment plans through his employer. Participation in retirement plans is usually voluntary, except for Social Security.
Counseling
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A desire to reduce the amount of money withheld from pay could indicate financial problems. People having problems with credit and debt should consult with a nonprofit credit counselor before reducing contributions to important retirement plans and federal income tax withholding. Making the reductions could lead to more problems later on.
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