There are few joys in life that match landing your first full-time job. Congratulations, you’ve made it to adulthood. You are part of the workforce, the producers, the people who make this country tick.
But with membership to this club comes greater financial responsibility.
Instead of crumbling under that responsibility, take steps to conquer.
What to Expect from Uncle Sam
Although no one likes to pay taxes, it’s better to know what you’re facing instead of getting caught off-guard.
In short, you’ll have federal income tax, state income tax (some states have no state income tax), Social Security tax, and Medicare tax deducted from your paycheck.
Federal income tax rates range anywhere from 10% to 39.6% depending on your income.
State tax rates are set by the state and have no federal statute.
Social Security and Medicare rates are 6.2% and 1.45%, respectively.
This might be tough to swallow if it’s your first time crunching the tax numbers; but don’t fret, starting a new job can also give you a tax break.
Learning to Define Tax-Deductible
As the proud owner of a full-time job, your new best friend should be the term tax-deductible. In short, tax-deductible means that, as long as a purchase or expense falls under the tax-deductible category, you can subtract the cost of the expense from your taxable income: meaning you’ll pay less taxes.
So if you made $30,000 this year and you spent $300 on moving expenses for your new job, you could subtract that $300 from $30,000.
As far as the government is concerned, you made $29,700. Since taxes are a percentage of your income, when your income decreases because of tax deductions, your taxes will also decrease. Granted, this is a super-simple example, but you get the idea.
Withhold the Correct Amount
Every time I got a new job, I always dreaded filling out my W-4. But with a little foreknowledge of what to expect, filling out your Form W-4 should be a breeze.
Taxes will be taken out of each paycheck that you receive, whether weekly, bi-weekly, or monthly. Your W-4 form dictates how much or how little income tax will be taken out of your pay.
Don’t worry. TurboTax W-4 calculator will help you figure out the correct information to include on your form.
Again we come back to the words financial responsibility. With your first full-time job, you’ll want to ask about your company’s 401(k) retirement savings plan.
If your company doesn’t offer a 401(k), you might consider researching IRAs and Roth IRAs.
Saving money isn’t something only for your parents. If you want to have money for retirement, then you need to start saving today. It’s never too soon to save.
You should also inquire about your company’s stock options, health savings account, and flexible spending account.
Hang out in the human resources office for your first couple of weeks on the job and soak up all of the financially-responsible information you can.
You’ve got money coming in on a regular basis now, it’s time to arm yourself with knowledge.