So I did the estimator for 2022 and its claiming I need to increase my withholding $80.00 per paycheck.
Instead of giving money to the IRS, I haven’t maxed out my 401K yet. What is the ratio of increase to tax reduction?
I want to increase my contribution to then reduce my AGI which will reduce the need for $80 increase
As Ira points out, you need to run the numbers yourself, as you haven’t provided enough information, like what bracket you’re in. As a general rule of thumb, if you are in the 22% bracket, each $100 of 401(k) pre-tax contribution will reduce your taxes by $22. So to cover $80/paycheck, you’d need to increase your contribution amount by $364 per paycheck ($80/0.22 = $364). For the 24% bracket, you’d have to increase your contribution amount by $333 per paycheck. If you’re in a different bracket, you can divide $80 by the bracket you’re in. If increasing your 401(k) contribution moves you down in tax brackets, use the lower bracket to figure the contribution increase needed.
That said, changing 401(k) contribution amounts can adjust other things in your tax return, so it’s probably best to run the estimator yourself with the different levels of 401(k) contributions, like Ira suggested.
AJ