College Grads Should Understand Their Paychecks

According to the Economic Policy Institute, the pay for new college grads is dramatically less than in 2000, having dropped almost eight percent since then and are expected to stay reduced for the next ten years or more.

That makes it more important than ever for college grads to understand their paychecks.

Understanding the Paystub

It’s important to be able to read and understand a paystub to verify accuracy and make adjustments. Common paystub terms include pay rate, hours worked, pay period, year to date, gross pay, and net pay.

New grads should know their pay rate and whether it’s hourly or salaried to verify if their pay is correct on pay day and should check how many hours worked are being paid in the pay period to compare to their own records. They should understand if the pay period is weekly, bi-weekly, or monthly, and know when the period starts and ends.

They should know that gross pay is the total amount earned before deductions are taken out, and net pay is the total amount after deductions, or take-home pay.

Understanding Income Tax Withholding

New grads should also understand how to use the state and federal W-4 forms to set and adjust income tax withholding from their pay. The forms are available online at www.irs.gov for federal forms and from each state’s revenue department for state forms.

Allowances claimed affect deductions. The more allowances are claimed, the less income tax is withheld from their paychecks.

Grads should understand how to claim allowances for which they qualify and how to adjust the allowances if they change because of marital status or number of dependents. Using a paycheck calculator from their bank’s website or http://www.irs.gov/Individuals/IRS-Withholding-Calculator helps to figure out the right amount of allowances to claim for the correct income tax withholding.

What Else Comes Out

State and federal income taxes are deducted according to the W-4 filing, and FICA is deducted for Social Security and Medicare taxes. FICA taxes are paid by both employees and employers, and in some cases depending on where they live, local city, county, and school taxes may be deducted.

College grads in their first career jobs need to understand paycheck terms and figures for income tax filing, credit reporting, and financial planning. Incorrect income tax withholding can shortchange income tax payments and leave them owing taxes at the end of the year.

Contact PAYDAY for more assitance on understanding paychecks.

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About the Author:

As Director of Operations, Jessica oversees the day-to-day operations for payroll, human resources, tax, finance and client affairs. She also plays an active role in formulating corporate strategy and developing client programs. Jessica believes a company’s success begins with its people. She strives to build a team encompassing excellence and professionalism, and to play a large role in developing the staff on an ongoing basis. Her passion for strong client relationships drives her in ensuring that clients receive the highest level of personal service and the best products in the industry. Jessica joined PAYDAY in 2004, and quickly advanced to Development Coordinator in 2006, when she took charge of Human Resources. She was promoted to Director of Operations in September, 2011.

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