You’ve finally done it. You’ve landed your first job, worked your first two weeks, and received your first paycheck. You open it excitedly, expecting to see the amount that you’ve calculated based on your hourly pay, and are disappointed to see a few hundred dollars deducted from your pay. As disappointing as it may be, paying taxes is just a part of reality once you have a job. Here is how you can understand the different taxes on your paystub so you can better manage your budget.
Income Taxes
First off, you will have a section on your paystub for federal income taxes and state income taxes. The amount that you pay for your state income tax will vary depending on where you live. It is determined by the state legislature, and could be different in different states. However, the federal income tax will be more consistent as long as you work a job that has similar pay. Federal income tax is the amount of taxes that you are required to pay by the federal government. Generally, this tax is deducted from your pay before you receive the paycheck by your employer. This will make it easier for you to manage your taxes when tax season comes along.
FICA Taxes
Next, you’ll probably see a section on your paycheck that is labeled as FICA taxes. FICA stands for the Federal Insurance Contributions Act. This refers to the credits that you earn for your Social Security benefits in the future. It might seem frustrating to have this amount deducted right now, but you’ll be grateful for it later on. It will provide you with financial help when you are in retirement and needing additional care. According to Barnes Disability Advocates, social security also helps provide benefits if you become disabled.
Net vs. Gross Income
Also, it is important to remember the difference between your net income and your gross income. According to Tax Slayer, your gross income is the amount that your employer pays you before any taxes are deducted. If you have an hourly pay rate, you can calculate your growth income by multiplying your hourly rate and the number of hours that you worked in a pay period. Your net income is the amount of money that you receive after your different taxes have been taken out. If you keep in mind the difference between these two income amounts, you’ll be able to better understand your income and better budget your finances.
So, if you’re trying to understand the deductions that are on your paycheck, keep this article in mind. Remember that you’re likely seeing federal and state income taxes, FICA taxes, and medicaid. If you have any questions about the amount that you are being taxed, talk to your parents or employer to get the answers that you need. You can also consult specialists from Asenaadvisors.com to understand your taxes better.
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