PAYDAY Workforce Solutions Blog

College Grads Should Understand Their Paychecks

On Jul 1, 2014

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 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 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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