Pay checks and taxes
Pay checks/pay stubs
When you are hired at a job, you set the federal and state tax rate withdrawn from your salary based on how many exemptions you claim on your W-4 form. Not all states charge state income tax.
Many jobs pay minimum wage. Others, like waiting tables, pay less because you’re expected to earn the difference with tips. As you enter a profession, you’ll likely earn a salary over a year, with benefits and perhaps bonuses.
However much you make, you’ll have to allow for taxes, Social Security and possibly health insurance.
On your pay check, your pay will be listed under total earnings for the pay period the stub covers.
Your net pay (what people call take-home pay) is how much you get paid after any deductions are taken out, like taxes, your 401(k) or health insurance.
Employers are required by law to withhold deductions such as federal income tax, Social Security and Medicare taxes (also known as FICA taxes), state income tax, local income tax and any court-ordered child support payments, if applicable. Employees can authorize additional deductions, such as 401(k) contributions and health insurance premiums.
You can also see how much money you have earned in the year to date, and how much you have paid in each deduction category.
Each year you’ll have to file income tax returns with the federal government and the state (unless it doesn’t have an income tax). If you’re considered a dependent student, discuss the situation with your parents. They may be able to claim you as a dependent, which could save them thousands of dollars.
Students and parents may be able to take advantage of these programs on their federal taxes:
- American Opportunity Credit, available for the first four years of college
- Lifetime Learning Credit, available if a taxpayer or a dependent is taking college courses to acquire or improve job skills
- Tuition and fees deduction, which lets taxpayers deduct qualified education expenses paid during the year for themselves or a dependent. The expenses must be for college
- Student loan interest deduction, which lets people deduct up to $2,500 per year on federal taxes for interest paid on federal student loans
For more detailed information about federal programs, go to www.irs.gov to download the free Publication 970 Tax Benefits for Education.
Tax rules may change from year to year, so make sure you have the most up-to-date information before filing.