Maximize Your Earnings: Top 16 Tax and Benefit Strategies for W-2 Employees in 2025

Below is a ranked list of the top 16 tax & benefit strategies for W-2 employees in 2025. These strategies are designed to help employees reduce taxable income, maximize savings, and take advantage of available tax benefits. 

Always consult with a tax professional before implementing any of the strategies below.

1. Maximize Retirement Contributions 

• Contributions to traditional 401(k), 403(b), or IRA accounts reduce taxable income and grow tax-deferred until withdrawn.

• Action: Depending on your current and future expected tax brackets, it may make sense to make Roth 401k contributions instead of Traditional 401k contributions. Also, the amount and style of your company match determines how much you should be trying to save while accounting for your personal goals and retirement needs.

• The company match is by far the most powerful portion of this strategy, and that's why it’s at the top of the list.

  
  

2. Net Unrealized Appreciation Strategy

• This is for individuals with large amounts of company stock within their 401k. But typically works best if over age 55 and if the stock is worth at least 5x what you purchased it for.

• You can read more about this strategy in the blog “The ultimate guide to net unrealized appreciation”

  
  

3. Health Savings Accounts (HSAs) 

• HSAs & FSAs are the ONLY accounts that offer triple tax benefits: deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. 

• HSA accounts can grow and rollover year to year, unlike FSA accounts. But I always encourage my clients to save as much as they can afford in HSA accounts due to the tax benefits and likelihood of being used for qualifying healthcare expenses at some point in their future.

• You may even be able to pay for a gym membership with your HSA if you have a letter of medical necessity from a licensed physician.

4. Take Advantage of Flexible Spending Accounts (FSAs) 

• FSAs allow employees to pay for medical or dependent care expenses with pre-tax dollars, reducing taxable income. 

• Action: The downside here is that if your FSA isn’t used by year's end, then you may have your balance taken from you. Some plans allow $500 to be rolled over year to year or provide a 3-month buffer to use your FSA funds. Regardless, you need to be aware of the rules surrounding your specific FSA before using one of these accounts.

5. Optimize Employer Benefits 

• Employer-provided benefits, such as commuter benefits, tuition reimbursement, and adoption assistance, can reduce taxable income or be tax-free.

• This is free money; be aware of whether it may apply to you and use the free benefits, such as pizza on Fridays, gym membership, or child care.

6. Adjust W-4 Withholding 

• Proper withholding ensures you avoid overpaying taxes (resulting in a large refund) or underpaying (leading to penalties). 

• This decision is different for everyone. Some people love receiving a refund at year's end, and it feels like a nice forced savings for them. Where others can’t imagine loaning the government their hard-earned money at a 0% interest rate and would much prefer to owe a small amount at year's end. I recommend that you know what camp you fall into and then adjust your W-4 form accordingly.

7. Claim Tax Credits 

• Tax credits, such as the Child Tax Credit or Lifetime Learning Credit, directly reduce your tax liability. Some examples of these credits are below.

  • Enhanced Child Tax Credit: Increased to $2,200 with inflation adjustments.

  • New Deductions: Qualified tips and overtime compensation deductions introduced.

  • Saver’s Credit: Increased credit amount and expanded eligibility.

  • Education Credits: Continued availability with stricter reporting requirements.

  • Trump Accounts: New pilot program offering a $1,000 tax payment for eligible children

  • Energy-efficient home improvement credit

  • Clean vehicle tax credit

  • Savers credit

  • Adoption credit

  • You can read more about the one big beautiful bill tax changes in the blog "Summary of the One Big Beautiful Bill Act (OBBBA)"

8. Contribute to Roth Accounts 

• Roth 401(k) or Roth IRA contributions grow tax-free, and withdrawals in retirement are tax-free, providing long-term tax benefits. 

• When I see a retiree with a $1 million Roth IRA vs. a $1 million Traditional IRA, I am aware of their vast difference in value. That $1 million Traditional IRA will likely be worth less than $800,000 after it is taxed during the withdrawal phase. Where the Roth IRA investor ate their veggies in the beginning and can now appreciate the full value of their account.

9. Deduct Student Loan Interest 

• Up to $2,500 of student loan interest can be deducted, reducing taxable income (subject to income limits). 

• Phase-Out Range:

  • For single filers, the deduction begins to phase out when MAGI exceeds $75,000 and is completely phased out at $90,000.

  • For married individuals filing jointly, the phase-out range is between $150,000 and $180,000.

• Eligibility Criteria:

  • You must be legally obligated to pay interest on a qualified student loan.

  • Your filing status cannot be "Married Filing Separately."

  • Neither you nor your spouse (if filing jointly) can be claimed as dependents on someone else's tax return.

10. Leverage Charitable Contributions 

• You can read more about charitable giving strategies in my blog “Unlocking the Power of Tax Smart Charitable Giving…”

• In 2026, single filers can deduct $1,000, and married filers can deduct $2,000 without itemizing their deductions.

  
  

11. Use Education Savings Plans (529 Plans) 

• Contributions to 529 plans grow tax-free, and withdrawals for qualified education expenses are tax-free. Some states offer additional tax benefits. 

• Contributions that can live in these accounts the longest are the most valuable, and contributions made in a student's last years of high school are the least beneficial. This is because only the gain on investments is tax-free.

• 529 accounts can be used for K-12 expenses and transferred to other family members if not used up by the intended child.

• You can also look into the Dynasty 529 plan strategy HERE.

  
  

12. Itemize Deductions (if Applicable) 

• If itemized deductions (e.g., mortgage interest, state taxes, charitable contributions) exceed the standard deduction, you can reduce taxable income further.

• Standard deduction for 2025 ($15,750 (single) & $31,500 (married))

  
  

13. Understand Employer Stock Plans (ESPP/RSUs) 

• Properly managing employer stock plans can minimize taxes on gains and maximize after-tax income. 

• Action: Time the sale of stock to optimize tax treatment and reduce the risk of holding large amounts of company stock for too long.

• You could also place options contracts in place to cover your downside in case there is downward volatility within your holding.

  
  

14. Tax-Loss Harvesting (Investments) 

• Offsetting capital gains with capital losses in taxable investment accounts reduces overall tax liability. 

• You can deduct up to $3k in capital losses per year against your earned income! I recommend working with a professional to implement a tax-loss harvesting strategy to navigate any nuances or wash-sale rules.

  
  

15. Plan for Professional Development Costs 

• While unreimbursed job expenses are no longer deductible for most employees, negotiating with your employer to cover these costs can save money. 

• Action: Request employer reimbursement for professional development or job-related expenses. 

  
  

16. Avoid Underpayment Penalties 

• If you have additional income from side gigs or investments, making estimated tax payments or increasing W-4 withholding can help avoid penalties. 

• Action: Calculate and pay estimated taxes if necessary. 

  
  

Conclusion 

By implementing these strategies, W-2 employees can reduce their taxable income, maximize savings, and take advantage of available tax benefits in 2025. For personalized advice, consulting a tax professional is recommended.