Deductions Most People Miss That Could Boost Your Paycheck by $200 a Month
Written by
Laura Beck
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Molly Sullivan
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You might be leaving money on the table every single paycheck. Most people set their tax withholding once when they start a job and never touch it again. Meanwhile, the IRS offers tools and new deductions that could put an extra $200 or more in your pocket each month.
The biggest opportunity comes from adjusting your W-4 form to match your actual tax situation. But several new deductions passed in 2025 mean even more money could flow back to you right now instead of waiting for a refund.
Update Your W-4 Withholding
If you received a large tax refund last year, you gave the government an interest-free loan. The average refund was $3,116 in 2025. That equals about $260 per month you could have been using all year.
The IRS provides a free Tax Withholding Estimator that calculates your correct withholding amount. After running the numbers, you submit a new Form W-4 to your employer’s payroll department. The change typically shows up in your next paycheck.
Even a modest adjustment can add $150 to $300 per month to your take-home pay depending on your income and tax bracket. The estimator accounts for your filing status, income, credits and deductions to find the right amount.
Claim New Deductions on Your W-4
The One Big Beautiful Bill Act created a few deductions, but they are temporary and only last through 2028. You can account for these directly on your W-4 in Step 4(b), which reduces your withholding immediately. (Note: In theory, Step 4(b) can be used to reduce your withholding for expected deductions (including new ones), but IRS guidance is still evolving on exactly how these new deductions should be reflected.)
Qualified Tip Income Deduction
Workers in tipping occupations can now deduct up to $25,000 of tip income from their taxable income. The deduction applies to servers, bartenders, hairstylists, nail techs, bellhops, concierges, hotel clerks, plumbers, electricians, HVAC technicians and landscapers among others.
Tips must be reported on your W-2, Form 1099 or Form 4137. The deduction phases out for single filers earning over $150,000 or joint filers over $300,000.
For someone in the 22% tax bracket who earns $20,000 in tips annually, this deduction saves $4,400 in federal taxes. That breaks down to about $367 per month in additional take-home pay if you adjust your withholding now.
Qualified Overtime Pay Deduction
Workers who earn overtime under the Fair Labor Standards Act can deduct the premium portion of their overtime pay. If you earn time-and-a-half, you can deduct the extra half.
The maximum deduction is $12,500 for single filers or $25,000 for married couples filing jointly. The deduction phases out at the same income thresholds as the tip deduction.Â
A worker earning $10,000 in overtime premiums (the half portion of time-and-a-half) in the 22% bracket saves $2,200 annually. That equals about $183 per month in extra take-home pay with proper W-4 adjustments.
Seniors Age 65 and Older
Taxpayers age 65 or older can claim an additional $6,000 deduction beyond the standard deduction. That equals $12,000 total for married couples where both spouses qualify. The deduction phases out for single filers over $75,000 or joint filers over $150,000.Â
Car Loan Interest Deduction
Buyers who financed a qualifying vehicle in 2025 can deduct up to $10,000 in interest paid on the loan. The vehicle must have undergone final assembly in the United States. The deduction phases out for single filers over $100,000 or joint filers over $200,000.Â
Review Standard vs. Itemized Deductions
The standard deduction for 2025 is $15,750 for single filers and $31,500 for married couples filing jointly. Most taxpayers take the standard deduction because it requires less paperwork.
But itemizing makes sense if your deductible expenses exceed those amounts. Common itemized deductions include mortgage interest, state and local taxes up to $10,000, charitable contributions and medical expenses exceeding 7.5% of your adjusted gross income.
If you bought a house, got married, had major medical expenses or made large charitable donations, run the numbers. Itemizing might lower your tax liability enough to justify reducing your withholding.
Don’t Forget Tax Credits
Tax credits reduce your tax bill dollar for dollar, making them more valuable than deductions. You can account for credits on your W-4 in Step 3, which increases your take-home pay throughout the year.
The child tax credit provides up to $2,200 per qualifying child under age 17. The credit begins phasing out at $200,000 for single filers or $400,000 for joint filers.
The earned income tax credit helps lower and moderate-income workers. For 2025, the maximum credit ranges from $649 for workers without children to $8,046 for workers with three or more children. Income limits vary by filing status and number of children.
The child and dependent care credit covers up to 35% of qualifying care expenses up to $3,000 for one dependent or $6,000 for two or more dependents.
Many workers leave these credits off their W-4, which means they wait until tax filing to get the money. Accounting for credits now spreads the benefit across every paycheck.
Maximize Pretax Benefits
Contributing to pretax retirement accounts and health savings accounts lowers your taxable income immediately. Your employer calculates withholding based on your reduced income, which means less tax comes out of each paycheck.
Traditional 401(k) or 403(b) contributions reduce your taxable wages. The 2025 contribution limit was $23,500 for workers under 50, $31,000 for those 50 and older and $34,750 for those 60 to 63.
Health savings account contributions are triple tax advantaged. You avoid taxes going in, while the money grows, and when you use it for qualified medical expenses. The 2025 limit is $4,300 for individual coverage or $8,550 for family coverage.
Flexible spending accounts let you set aside pretax dollars for medical expenses or dependent care. The 2025 limit for healthcare FSAs is $3,300.
A worker who maxes out a healthcare FSA saves about $66 per month in federal taxes at the 24% bracket, plus additional savings on payroll taxes.
Update After Life Changes
Major life events usually change your tax situation, but many people forget to update their W-4s.
Getting married often means you qualify for a higher standard deduction and different tax brackets. Having a baby adds the child tax credit and potentially the child and dependent care credit. Buying a home might mean you should itemize to deduct mortgage interest and property taxes.
Divorce, job changes, a spouse starting or stopping work, and kids aging out of credits all affect your optimal withholding. The IRS recommends checking your withholding annually and after any major life change.
How the Numbers Add Up
These strategies can combine to add $200 or more to your monthly take-home pay.
Adjusting withholding to match your actual tax liability adds $100 to $200 per month for many workers. Claiming the tip or overtime deduction adds $150 to $367 monthly depending on your income. Accounting for tax credits adds another $50 to $150 monthly. Maximizing pretax benefits adds $50 to $100 monthly.
A server earning $45,000 including $20,000 in tips who properly claims the tip deduction, adjusts withholding and accounts for credits could see $300 to $400 more per month in take-home pay.
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