12 Ways Your Employer Can Increase Your Tax Refund
Life + Money

12 Ways Your Employer Can Increase Your Tax Refund


Whether you’re at your first job or fourth, you may not have realized an essential truth: pay for as many things as you can through your employer.

In fact, if you master this trick, you’ll save hundreds or even thousands a year!

There are two ways to do this.

1. Have a portion of your salary taken out, pretax, in order to pay for a large expense.

2. Have your employer straight up pay for an expense. They’ll do this for you because, a) It’s the nice thing to do (why should you pay for your work Blackberry? You don’t even want it!), and b) Your employer can deduct that expense from their own tax bill.

RELATED: The 5 Most Common Taxpayer Questions

We’ll explain these two facets of saving money at work, and all the different ways how work expenses are taxed could affect you. Plus, how to avoid a big tax surprise come next April. Read on:

Pretax Expenses
Let’s say you are in the 25 percent tax bracket and pay for a $100 monthly rail pass out of your paycheck. That means you actually have to earn $133.33 before taxes and then pay $33.33 in taxes on it before you’d see $100 in your bank account.

On the other hand, if you buy the rail pass through your employer pretax, meaning you use money that won’t be taxed, then you’d only have to earn $100, saving $33.33 a month, or $400 a year.

Another bonus of using pretax dollars for your expenses is that you’ll pay less in taxes overall. For instance, if you make $50,000 a year but pay for everything out of your paycheck, you’ll pay taxes on the full $50,000. But if you set aside $5,000 for pretax expenses, you’ll only pay taxes on $45,000 of your income.

Take a look at our list of all the things you can get tax-free and contact your HR department to see what your company offers.

401(k) Contributions
The granddaddy of all tax-free expenses, this is the first thing you should do to both lower your tax bill and address a basic financial to-do. If your job doesn’t offer matching 401(k)s, open a traditional IRA, which is also tax-free. Read about the difference between these retirement accounts.

If you borrow money from your 401(k) account at your current job (which we don’t recommend), make sure you pay it back before leaving your job. If you fail to do so, it will be taxed liked a typical withdrawal, you’ll get charged a 10 percent penalty if you are under age 59.5 and you’ll have made reaching retirement more difficult–a triple whammy for your financial goals.

Medical Reimbursement Account
Also called a flex plan, a flexible spending account (FSA) or a health savings account (HSA), this allows you to take pretax dollars out of your paycheck and use those to pay medical expenses ranging from birth control to surgery to visits to the dentist. In fact, what you can pay for out of this may surprise you. Most companies offer you the ability to sign up for an HSA during open enrollment.

Child Care Reimbursement
If you are paying for childcare, you know just how big a chunk of your budget it takes up. But if you pay for it with pretax dollars, you’ll save a lot in taxes. Many places call this Dependent Care Reimbursement, meaning you can also pay for elderly or special needs care with pretax dollars, as long as that person meets the definition of a dependent.

RELATED: 10 Celebrities Who Ran Into Tax Trouble with the IRS

Public Transportation
If you’re taking public transportation, including the train, subway, ferry, monorail or vanpool, you can pay for this expense through your employer and get up to $125 a month tax-free.

Moving Expenses
Did you move for your current job? If your new job is 50 miles farther from your old home than your former job was and if you worked at least 40 weeks in the year after the move, you can deduct those expenses. Eligible expenses are mover’s fees, lodging, packing materials and gas mileage. This differs from some of the other tax-free expenses, in that instead of setting aside your income, you’ll deduct it when filing your taxes. So keep records of what you spent! Learn more.

Employee Benefits That Aren’t Taxed
Another way that employer perks affect you is whether the perk is considered taxable income. For example, your employer paying for your housing is considered a taxable benefit, meaning you will have to pay taxes for its value. But if your employer pays for your professional dues, you won’t have to pay taxes on that. That is ideal, and means you don’t have to keep track of or declare that benefit on your taxes. Your employer will keep track for you.

There are two reasons why it’s good to know which benefits are taxed:

1. If you work for a small company, they might not know that they can deduct some expenses. For example, if you and your coworkers are all getting a subscription to a trade magazine but paying for it yourselves, approach your employer and tell them that they can deduct the cost of a group subscription. Voilá, one less expense you have to pay for.

2. If you are getting a benefit that is taxed, or your employer is paying for so much that it goes over the limit of what is untaxed, you’ll have to pay taxes on that. If your employer is paying for that expense, say $1,500 a month for your apartment, by just adding the cost onto your paycheck, then you don’t need to do anything–the taxes will already be taken out.

If your employer is sending a check for $1,500 straight to the landlord, then you’ll have to pay taxes on that in April. Your employer will issue you a 1099 with that information. If you think you’ll have to pay more than $1,000 in taxes for that benefit at the end of the year, you should increase your withholding so you don’t get hit with penalties for underpaying by the IRS.

Read on for some of the benefits you can get tax-free:

Health Insurance Premiums
One of the biggest perks of most full-time jobs is getting health insurance! If you pay for your own health insurance, the premiums are enormous, plus you are getting taxed on that money. But if your employer pays for insurance, it is tax-free.

Some Transportation Costs
If you drive to work, parking costs can be paid for by your employer tax-free up to $240 a month.
For those of you who get to work by bike, you can get the costs of bike maintenance and storage paid for by your employer tax-free, up to $20 a month.

Employee Gym
Employee gyms, located on your employer’s property, are doubly cheap to use. That’s because most cost less than a typical gym or are even free, and having access to it isn’t considered taxable income.

Educational Assistance
Want a tax-free raise? Convince your employer to pay for education classes and that’s essentially what you will get. Not only will you learn marketable new skills, the value of the classes up to $5,250 isn’t taxed.

Life Insurance
Up to $50,000 in group term life insurance coverage can be covered by your employer, tax-free. If your employer will cover more than $50,000 in benefits, than that extra will be taxed.

De Minimus Benefits
You can roughly translate “de minimus” to “Eh, not worth our time.” These are benefits like donuts in the break room, happy hour drinks and cab rides home when working late that are just too small to be worth tracking by the employer.

Adoption Expenses
Did your employer help pay for adoption expenses through an adoption assistance program? If so, it’s not considered taxable income.

Retirement Planning Services
If your employer provides retirement planning services, take it! Not only do we love any opportunity to prepare for retirement, the value of it isn’t taxed.