Ask Kim


Boost Your Take-Home Pay

Kimberly Lankford

If you get a refund from the IRS every year, tell your employer to trim your withholding. And make sure you’re taking advantage of tax breaks you deserve.



It seems like so much money is withheld from my paycheck for taxes. What can I do to lower my taxes? I have two young children.

SEE ALSO: How Does Your Income Stack Up?

First of all, if you tend to get a refund when you file your taxes, adjust your tax withholding so you get more money with every paycheck instead of a big refund check in the spring. All you have to do is file a new W-4 form with your employer’s payroll office. Use our withholding calculator to get started.

Several tax breaks for families can cut your tax bill. For example, you can claim the child-care credit if you pay for day care, a nanny, preschool, before-school or after-school care or even day camp for your children (under age 13) while you work. To qualify, you (and your spouse, if filing jointly) must work or be looking for work (one of you can be a full-time student while the other is working).

You can count up to $3,000 in child-care expenses for one child, or up to $6,000 for two or more children. Families earning less than $15,000 can claim a credit for up to 25% of eligible expenses; the size of the credit gradually decreases as income rises. Families earning more than $43,000 can claim a credit for up to 20% of the eligible costs (with no maximum income limit). This translates into a credit of $600 to $1,050 if you have one child, or $1,200 to $2,100 if you have two or more children. Because it’s a credit, not a deduction, it lowers your tax liability dollar for dollar. See Take a Tax Break for Summer Camp for details.

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Also take advantage of your employer’s flexible-spending account. Money you contribute to an FSA escapes income taxes and Social Security taxes. If your employer offers such a program, you can set aside up to $2,500 in a health-care FSA to use tax-free for deductibles, co-payments and other uninsured medical expenses. And you may be able to contribute up to $5,000 to a dependent-care FSA to cover child-care costs for kids under age 13.

The rules for a dependent-care FSA are the same as the rules for the child-care tax credit, but the FSA is usually a better deal if you have the option. Families with two or more kids may be able to claim part of the child-care credit even if they use an FSA.

You usually sign up for both types of FSA during an open-enrollment period in the fall. Use our flexible-spending account calculator for more information.

If you contribute to a 401(k), 403(b), 457, Thrift Savings Plan, Roth or traditional IRA or other retirement-savings plan, you may qualify for the frequently overlooked retirement savers’ tax credit, which can reduce your tax bill by up to $1,000. The lower your income, the higher the credit you can receive (the credit phases out entirely for married couples earning more than $59,000 in 2013, heads of household earning more than $44,250 and singles earning more than $29,500). See Take Advantage of the Retirement Savers’ Tax Credit and the IRS savers’ credit factsheet for details.

Also check out The Most-Overlooked Tax Deductions and 71 Ways to Cut Your Tax Bill for more tax-saving ideas.

Got a question? Ask Kim at askkim@kiplinger.com.



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