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Quick Answer: How does a 401(k) contribution change my paycheck?
Traditional 401(k) contributions lower the wages your employer runs through the IRS withholding tables, so your federal income tax withheld drops along with your gross pay. Social Security and Medicare still apply to the full pre-tax salary, and Roth 401(k) contributions do not reduce taxable wages. If you dial contributions up or down mid-year, revisit your 2025 Form W-4—especially Steps 2 through 4—or run the IRS Tax Withholding Estimator to keep refunds and balances in check.
Key Takeaways
- Traditional 401(k) deferrals reduce IRS Publication 15-T taxable wages and income-tax withholding, while Roth 401(k) deferrals are after-tax and leave withholding unchanged; neither version reduces FICA.
- Form W-4 (2025) still controls your federal income tax withholding—Steps 2, 3, and 4 determine whether your new retirement savings rate triggers more or less tax now versus at filing.
- Dependent credits stay worth $2,000 per qualifying child and $500 per other dependent (until $200k/$400k income thresholds), so double-check Step 3 after contributions change your withholdings.
- Use the IRS Tax Withholding Estimator or the Multiple Jobs and Deductions Worksheets before filing a new W-4; only claim “Exempt” if you truly owed zero tax last year and expect the same this year.
What a 401(k) Does to Your Paycheck
When you enroll in or increase a traditional 401(k), the contribution comes out of your gross pay before federal income tax is calculated. Your taxable wages (Box 1 on the W-2) drop, so the withholding formulas in IRS Publication 15-T return a smaller income-tax amount each payroll. You continue to pay Social Security and Medicare on the original gross because the W-4 does not control FICA. The same is true for most state unemployment and disability programs.
Roth 401(k) deferrals, by contrast, are made with after-tax dollars. They reduce your net pay today but leave federal taxable wages unchanged, so your withholding schedules do not automatically adjust. Cafeteria-plan benefits (health insurance, FSA/HSA via payroll) usually reduce both taxable and FICA wages; understanding which deductions change which tax buckets is the first step before tweaking your W-4.
How the W-4 Fits Into 401(k) Planning
Form W-4 tells your employer how much federal income tax to withhold from each paycheck. It does not change 401(k) eligibility, contribution limits, or FICA withholding. The 2025 revision keeps the five-step layout introduced in 2020: Step 1 for personal information and filing status, Step 2 for multiple jobs or a working spouse, Step 3 for dependent and other credits, Step 4 for optional adjustments, and Step 5 for your signature. Employers translate the steps you choose using Publication 15-T’s wage-bracket or percentage methods.
Because 401(k) contributions cut taxable wages, they often reduce withholding automatically. Still, if your household has multiple jobs, uneven pay, or non-wage income, the default result can overshoot or undershoot what you expect at tax time. Updating the W-4 after you change your deferral rate keeps tax withheld aligned with the new cash flow.
Align Your 2025 W-4 After Changing Contributions
Use your latest pay stub and retirement election to revisit each W-4 step. The 2025 form highlights the same checkpoints as earlier years but with updated reminders to use the IRS estimator.
Step 1: Filing status sets the baseline
Selecting Single or Married filing separately, Married filing jointly or Qualifying surviving spouse, or Head of household determines the standard deduction and tax brackets applied to every paycheck. Pick the status you expect to use on your Form 1040; the wrong one can offset the benefit of higher retirement savings.
Step 2: Only if multiple jobs or spouse works
Check this section if you or your spouse have more than one job. The form tells you to choose one of three options: use the IRS Tax Withholding Estimator (most accurate), complete the Multiple Jobs Worksheet and carry the result to Step 4(c), or check the two-jobs box on both W-4s when exactly two jobs provide similar pay. Only complete Steps 3 and 4(b) on one W-4—ideally the higher-paying job.
Step 3: Dependent and other credits
For wages up to $200,000 (or $400,000 if filing jointly), claim $2,000 for each qualifying child under 17 and $500 for other dependents. Add in other credits you can reasonably expect. A larger 401(k) deferral might lower your taxable income, but it does not change how much credit you can claim here. Enter the total on Step 3 to reduce withholding.
Step 4: Optional adjustments
Step 4(a) lets you request withholding for other non-wage income (dividends, interest, retirement draws). Use Step 4(b) only when your total deductions (itemizing, student loan interest, certain adjustments) exceed the standard deduction; the worksheet on page 3 walks you through it. Step 4(c) is for extra withholding each paycheck—including results from the Multiple Jobs Worksheet. It is the place to offset reduced withholding when you switch from Roth to traditional 401(k) or vice versa.
Step 5: Sign and date
Your employer cannot use the form without your signature. Submit the new W-4 online or on paper, and keep a copy with the pay stub showing your 401(k) election change.
Coordinate Multiple Jobs, Spouses, and 401(k) Elections
Households with more than one W-2 must coordinate both 401(k) deferrals and withholding. The two-jobs checkbox in Step 2 splits the standard deduction and tax brackets between jobs, which is most accurate when both jobs pay similar wages. If one job pays significantly more—or if either job exceeds $120,000 annually—the form advises using the Multiple Jobs Worksheet or the estimator instead.
Remember that only one W-4 should include Step 3 credits and Step 4(b) deduction adjustments. If both spouses defer heavily into workplace plans, the estimator can account for the lower taxable wages at each job and suggest whether to enter an amount in Step 4(c) to smooth tax across the household.
Dependents, Credits, and Lower Taxable Income
Even after boosting retirement savings, dependent credits remain the fastest way to lower withholding. In 2025 the amounts stay $2,000 per qualifying child under age 17 and $500 per other dependent until income exceeds $200,000 (single, head of household, married filing separately) or $400,000 (married filing jointly). If your combined wages fall below those thresholds because of larger pre-tax contributions, you may keep the full credit without phaseouts.
Other nonrefundable credits can also be included in Step 3. Keep documentation showing how you arrived at the total; the IRS may request support if withholding appears artificially low. When in doubt, rerun the estimator after a few pay periods to confirm that the new withholding still aligns with expected tax liability.
Step 4 and the Exempt Box: Use Them Carefully
Step 4 is where you fine-tune withholding after accounting for your 401(k). Use the Deductions Worksheet on page 3 to determine whether you should enter a value in Step 4(b); many taxpayers who max a 401(k) also itemize, and the worksheet captures mortgage interest, charitable giving, and other above-the-line adjustments. Step 4(c) is useful if you switch to Roth deferrals or expect taxable bonuses later in the year and want to front-load withholding.
To claim exemption from withholding, you must write “Exempt” in the space below Step 4(c) and complete only Steps 1(a), 1(b), and 5. You can only do this if you had zero federal tax liability last year and expect none in 2025. The exemption expires annually; employers must receive a new form by February 17, 2026, or they revert to standard withholding. Large 401(k) contributions alone do not qualify you for exempt status.
When to Update Your W-4 After 401(k) Changes
The W-4 instructions urge you to submit a new form any time your personal or financial situation changes—marriage, divorce, a new dependent, or shifts in income and deductions. Changing your 401(k) deferral rate alters taxable wages, so it is a prime time to re-check withholding. Mid-year adjustments are especially important if you front-load contributions early in the calendar year or receive bonuses that push you into Additional Medicare Tax territory.
Before you send HR a new W-4, gather year-to-date pay stubs and retirement plan statements, then run the IRS Tax Withholding Estimator. It accounts for multiple jobs, credits, and other income, and it was updated in August 2025 to reflect the latest tax thresholds. Employers then rely on Publication 15-T to translate your elections into per-paycheck withholding, so keep an eye on your next pay stub to confirm the change.
Examples
- Step 1: Files as Single; taxable wages drop because the 10% deferral reduces Box 1.
- Step 2: Skips—only one job, so no additional adjustments.
- Step 3: No dependents, leaves blank.
- Step 4(c): None needed after running the IRS estimator, which already shows a smaller withholding amount thanks to the higher contribution.
- Result: Take-home pay falls by slightly less than the new contribution, because lower taxable wages mean less income tax withheld.
- Step 1: Higher-earning spouse selects Married filing jointly.
- Step 2: They use the Multiple Jobs Worksheet because one salary is much higher; the calculated amount is entered in Step 4(c) of the higher-paying job.
- Step 3: Claims $4,000 for two qualifying children under 17, applied only on the higher-paying job’s W-4.
- Step 4(b): Uses the Deductions Worksheet to account for itemized deductions that exceed the standard deduction after large 401(k) deferrals.
- Result: Withholding stays aligned with their expected joint return even though both paychecks show lower taxable wages.
- Step 1: Uses Head of household filing status based on dependents at home.
- Step 2: Checks the two-jobs box on both W-4s because there are exactly two jobs with similar pay; Steps 3 and 4(b) are completed only on the primary job.
- Step 3: Claims $2,000 for each qualifying child to reduce withholding at the primary job.
- Step 4(c): Adds a small extra withholding amount on the secondary job to cover untaxed freelance income, since Roth contributions there do not change taxable wages.
- Result: Combined withholding covers the return even though the second job’s Roth deferrals reduce cash flow without lowering tax automatically.
Frequently Asked Questions
Troubleshooting and Tips
- Compare Box 1 and Box 3 on your pay stub to see how much of your wages remain subject to income tax versus Social Security after changing deferrals.
- Save copies of the Multiple Jobs or Deductions Worksheets if you fill them out—the IRS can request support for the Step 4 entries.
- Re-run the IRS Tax Withholding Estimator after a few pay periods to confirm that the new 401(k) rate and W-4 produce the expected refund or balance.
- Use Step 4(c) to even out withholding if you earn bonuses, commissions, or a spouse’s paycheck that does not account for your higher retirement savings.
- Remember that many states have their own W-4 equivalent; check whether your 401(k) deduction changes state withholding the way you expect.
References
- Form W-4 (2025) — Official instructions for Steps 1–5, including Multiple Jobs and Deductions Worksheets and the exemption deadline.
- IRS: About Form W-4 — Revision history, FAQs, and links to the online estimator.
- Publication 15-T (2025) — Wage-bracket and percentage tables employers use to calculate withholding.
- IRS Tax Withholding Estimator — Recommended tool for multi-job households and mid-year changes.
- Publication 505 (2025) — Broader guidance on withholding, estimated tax, and adjusting for non-wage income.