//Understanding Your Paycheck

Unless you’re a child actor, chances are your first job won’t pay much. Starting at the bottom of the pay scale is normal and a part of being in the working world. If you have big plans like buying a car, you’ll have to make smart money management decisions. Fortunately, it isn’t always about how much money you make, but how well you manage your spending.

Determine your “take-home pay”

The first thing to do is determine your “take-home pay.” Many workers are shocked when they see their first paycheck because it’s a lot less than anticipated. Why? Your employer is required to deduct and withhold taxes, and then remit them to the proper government agencies.

For example, if you work 10 hours a week and are paid the federal minimum wage of $5.15 an hour, you would earn $51.50 per week. This is called your Gross Pay. However, you don’t get the entire $51.50. Here’s a description of typical deductions:

• Federal Income Tax: These are “pay-as-you-go” taxes, meaning you only pay taxes as you earn money. Your employer will calculate the taxes withheld based on how you completed your Form W-4.
• FICA: This is the Federal Insurance Contributions Act (the proper name of Social Security). This is divided in 2 parts — 1. OASDI (Old Age, Survivor and Disability Insurance and 2. Medicare (retirement health insurance)

Depending on where you live, you may also have these deductions: 

• State Income Tax
• City Taxes
• State Disability Insurance (SDI)

Subtract these deductions from your paycheck and the total is your Net Pay (also called, take-home pay). Depending on the state you live in, as much as 10 percent of your pay go to federal, state, and local income taxes along with nearly 8% for FICA. In other words, your gross pay might be $242, but your take-home pay might be closer to $200.

Now that you have a better idea of your actual “take home pay,” the next step is to determine what to do with your new income.