Social Security taxes can quietly chip away at your paycheck, leaving you with less of your hard-earned money. But what if you could lighten that load without breaking any rules? Good news–it’s totally possible! We’ve got the tips and strategies to help you reduce that tax hit legally and keep more of what you earn.
Shift Your Focus to Tax-Deferred Accounts
Maxing out contributions to tax-deferred accounts, such as traditional IRAs, might seem like basic advice, but it’s a smart move to reduce taxable income. By putting money into these accounts, you reduce the income that’s taxed, ultimately keeping more of your earnings for yourself.
Explore the Magic of Self-Employment
When you run your own business, you have the power to dictate the terms, including tax strategies. As a self-employed person, you can deduct business expenses, which lowers your taxable income and helps reduce your Social Security tax burden.
Master the Art of Employer Benefits
Your employer may provide benefits that help reduce your Social Security taxes. Health, dental, and vision insurance, often seen as standard perks, can lower your taxable income and ultimately leave more money in your pocket.
Salary Deferrals, The Smart Play
Salary deferrals might sound complicated, but they can be lifesaving when cutting your taxable income. Through programs like a 401(k), money you defer gets you out of paying Social Security taxes while saving for retirement.
Involve Your Kids in Work (The Right Way)
Got kids? You can hire them to do legitimate work in your business, which can help reduce your taxable income and even avoid paying Social Security taxes—up to certain limits. However, make sure their tasks are necessary for your business. If the work isn’t legitimate, you could run into legal issues.
Play With the Wage Base Limit
There’s a cap on how much income is subject to Social Security taxes. In 2024, the limit is $160,200. Once you hit that threshold, your income no longer gets taxed for Social Security. Plan accordingly, and you could avoid taxes on a hefty chunk of your earnings.
Set Up a Health Savings Account (HSA)
HSA contributions are tax-deferred, which means they reduce your taxable income—and, by extension, your Social Security taxes. Plus, you can use the funds for medical expenses, tackling two goals with one smart move.
Consider Non-Wage Income Sources
Rental income, dividends, and royalties are the silent heroes in your financial portfolio. These forms of non-wage income aren’t subject to Social Security taxes. It might be time to look beyond the paycheck if you can diversify.
Max Out Your 401(k) Contributions
If you want to lower your taxable income, contributing to a 401(k) helps reduce the Social Security tax you owe. For 2024, the contribution limit is $23,000 (if you’re under 50) or $30,500 (if you’re 50 or older), which allows you to put more away while reducing your tax liability.
Consider a Health Reimbursement Arrangement (HRA)
HRAs are employer-funded accounts designed to cover medical expenses. By offering tax-free contributions, HRAs help lower your taxable income and Social Security liability. These employer-funded accounts are a practical way to save on taxes while covering essential medical expenses.
