The Truth About Your Paycheck
Article Type: Quick and Dirty
What's In Your Paycheck?
FINALLY! You have a job, you have worked your two weeks, you are ready for that first paycheck, and you can feel your body quiver in anticipation (that may be the wallet you are sitting on). As you tear open that first envelope, your brain is casually deciding what you are going to buy first, your stomach sinks through the floor, through the Earth and somewhere far into China. That paycheck you've been longing for? It's a fraction of what you thought it would be and all of the cursing in the world isn't going to get that money back. The even worse news is that it's going to be this way for every paycheck for the rest of your life. Sorry pal, this is what working in the real world is like.
You ask, “Who the heck is FICA and FUTA and why are they stealing from me?”
While you might earn a sweet $10 an hour life-guarding this summer, the government will subtract Social Security, Medicare, federal and state income tax from every check you receive, leaving you with less in your pocket than you actually earned. We know, it's unfair. Disgustingly unfair in fact. But hey, those roads, police stations, fire trucks, public schools and libraries, clean water, government buildings and every other public service Americans take for granted aren't going to pay for themselves.
Here's a breakdown of what's in your paycheck and what the government will take out:
Hours, Rates, and Earnings
You know how much you make. You know how much you earn. You know how many hours you've worked. You should know the total amount that will be written in this section of your check.
True to its title, this section will tell you how much you earn, how many hours you've put in this pay period and what your actual earnings are before taxes and all that nastiness. This is called your gross pay which is ironic since it's actually the opposite of the grossly low amount you're actually taking home. Sometimes this section will also include your earnings to date (sometimes abbreviated as YTD). This will let you know how much you've cumulatively earned since accepting employment at that company.
The "Hours, Rate and Earnings" section of your check is the most straightforward part but there is a catch. Even though minimum wage is set at $7.25 per hour, the federal government allows employers to pay you $4.25 per hour for the first 90 days of employment if you're under age 20. Most employers don't do that, but it is legal.
You should be able to tell if the "Hours, Rate and Earnings" section of your check is correct just by looking at it. C'mon, it's the American way to keep a running tally of how much you'll get paid in your head. That's how we get through the week at all. If there's a mistake, notify your boss and the accounting department immediately.
Here's where it gets hairy. If you're just working during the summer, good for you. You probably won't have federal or state income taxes deducted out of your check. In fact, if you know that you won't be earning more than $5,700 per year, you can tell the government that you absolutely don't want any income taxes taken out by writing "exempt" on your W4 (That's this form. You have to fill one out before starting your job).
If you're working throughout the year, you'll probably earn more than $5,700. Also, good for you! Earning more than $5,700 per year means that you'll have more money in your pocket, but federal and state income taxes will automatically be deducted. (Spoiler: You may be able to get some of it back as a tax refund when April rolls around).
Federal and state taxes go to pay for all public services the government provides, ranging from welfare to recycling programs. If you like anything the government does, you can thank the people who pay taxes to fund it.
One day you'll be old as dirt and on that day, the government will rise from the ashes and help pay for your medical expenses (maybe). Thankfully/unfortunately you're not there yet. For now, you're on the other end of the stick, forking over a chunk of your paycheck to help current old people pay their medical expenses.
The portion that goes to the elderly is called FICA. Short for the Federal Insurance Contributions Act, FICA funds Social Security and Medicare programs that protect our elderly. What it means for you is that in 2011, 1.45% of your paycheck goes to Medicare and 4.2% will go to fund someone's Social Security. In 2012, you'll actually pay 6.2% for someone else's Social Security.
Unlike income taxes, you don't have a choice about paying FICA but you will have sweet vengeance when some future teen is losing part of their paycheck to pay for your wrinkly rear end (maybe, unlikely...). What goes around comes around.
At this point we have to ask a favor—look ahead. Way ahead. Look ahead to the days when you're old and your kids have grown up and you're too tired to work. Look ahead to the days when all you'll want to do is, as Will Smith once put it, "Chillin’ out, maxin’ and relaxin’ all cool." When that day comes, you're going to want some money to blow on golfing or gardening or whatever your old person hobby will be. You're definitely not going to want to have a job.
If you're lucky enough to work for an employer who allows you to deduct a portion of your paycheck to start saving for that part of your life now, take it and never stop thanking them. If they'll match a portion of your retirement savings, that's even better.
Statistically, money put in a retirement fund doubles every 8 to 10 years, meaning that money you sock away for retirement now will actually count more than money you save later. Most employers don't provide retirement options for part-time employees, but if you happen to stumble upon one that does, take advantage of it.
Freelancers and Teen CEO's
Think you're smart by starting your own company? Well...you are. Nice work. The catch is that you'll have to play by a different set of tax rules. Self-employed teens won't have FICA or income taxes taken out of their paychecks, but they will have to pony up for both when April taxes are due.
The price of being your own boss is facing harsher tax regulations. When you land a traditional job through a company, Social Security and Medicare will be deducted from your paycheck, but it will be matched by your employer. If, for example, you make $200 a week as an admin assistant, you'll pay $12.40 each week to FICA and your boss will pay another $12.40 on your behalf.
If you are the boss you'll pay both portions. For 2011, being your own boss will cost you 13.3% of your paycheck. By 2012, that figure goes up to 15.3%. The good/bad news is that it will probably take a few years for your company to become profitable. If you earn under $5,700, you won't have to pay income tax, but if you earn more, it won't be automatically taken out of your paycheck. You'll simply get a big fat bill for it all next April. If you're working for yourself, put a portion of each revenue check in a savings account and hold it. Believe us, you're really going to need it this spring.
My First Job
Everyone remembers their first job.
It’s a definitive time in your life: it’s a step up from childhood, and a preview of adulthood. It’s a proud moment, when you are old enough to earn your own money. First job experiences are also formative. Not only do they teach you the value of hard work and money — they also shape your understanding of the world. They increase your self-confidence and self-sufficiency. And a good first job will get you started on the path to future success.
My first job was a doughnut finisher at my local Dunkin Donuts in Andrew Square — a job that was very reflective of my Boston roots. Although the work wasn’t glamorous, it was definitely a lot of hard work and taught me a lot. While I wouldn’t call myself a baker, I surprised myself with my new skills — something I wouldn’t have learned if I hadn’t taken this job!
My days would start early in the morning, way before our store opened — and you know how early Dunkin Donuts opens! My shift would consist of getting the doughnuts ready for sale, accept shipments, and prepare the doughnuts with a variety of fillings, icings, and decorations. The busiest time would obviously be in the morning, when doughnuts would fly off the shelves. Sampling the different doughnuts was a fun part of the day, especially the new flavors.
When I go to Dunkin Donuts now, I often think back to the hours I spent there as a teenager. Dunkin Donuts has changed a lot since I worked there in the early 1980s. But I know my first job experience is similar to other young people’s experiences today. Everyone’s career needs to start somewhere, and that’s where I got my start.
In many ways, my first job helped shape me into who I am today — it taught me the value of hard work, the importance of being dedicated and committed to getting the job done, and the proud feeling you get when you earn your own money. It also shaped my understanding of how crucial part-time jobs are for a young person’s growth and development.
That’s why, as Mayor, I am so supportive of summer jobs and other part-time jobs for our City’s young people. These are positive experiences that every young person should have, especially as they move through their teenage years and into adulthood. For young people who live in low-income areas or have a lack of support in their lives, a good part-time job can have a great impact on their lives and even make a difference, by increasing their confidence and putting them on the track to success.
So as a City, we’re committed to growing these kinds of jobs and connecting our young people to these opportunities. We’re working with employers to recruit more young people. Having job experience will make them excited for their future, and for finding and achieving their dream job someday. It’s how we support our young residents, giving them a chance, and help prepare them — and our City’s future workforce — for success.
In the spirit of celebrating first jobs, below are a few first job stories from some of my senior staff at City Hall, explaining the impact of their first jobs:
David Sweeney, Chief Financial Officer
My first job started at age 6, as an independent personal paperboy. My parents had informed me I would be performing this job. This “opportunity” was provided to me by my parents, and the route consisted of delivering a newspaper to an elderly couple at the top of my street, Bea and Marie. I delivered them their newspapers and they sat and entertained me for about 30 minutes on my walk to school every morning. Essentially, Bea and Marie paid me $2 a week for the responsibility of babysitting me before school because my parents had to leave for work so early in the morning. I did the job for four years, and spent my $2 paycheck on candy, ice cream, and french fries at King’s Corner Variety.
My advice: If you have the luxury, find something that excites you and doesn’t feel like work. Also, take advantage of the on the job training you’re receiving. Soliciting customers for a sale, shoveling mulch, or operating the cash register might not seem that glamorous, but you can build on those skills over time. Everyone has to start somewhere — even if you don’t get to be a 6 year-old paperboy.
Joyce Linehan, Chief of Policy
I was 14 when I was hired as a recreation director. The campground I spent my summers at had a lack of organized activities, so I convinced the owner to hire me to help plan things like movie nights, games and music events. I worked there for three summers. Looking back, this was my first entrepreneurial venture — I liked the creativity involved, and the flexibility. For other people looking for their first jobs, this is my advice: There is opportunity everywhere — sometimes when you least expect it. Try to see the world through other people’s eyes, and remember that people have a lot to offer.
Jerome Smith, Chief of Civic Engagement
At 16, I was hired to be a crew member at McDonald’s. I was the oldest of five, and having a job meant independence, and helping my family. I applied for the job after seeing a job in Waterbury Republican — without asking for permission in advance. I remember my first day was chaos: I was assigned to the fry station and once 10:30 AM hit they would be serving both breakfast and lunch at the same time. My first manager’s name was Gary, and he became a good friend, inviting me over for dinner and talking with me about my future. He tried to convince me to join the McDonald’s management program, but instead I left to go to college.
Here’s what I learned about first jobs: It is your first job, not your last. Get as many skills as you can and build a strong foundation. Even if the sky is falling, don’t get discouraged. Take advantage of all of the experiences, good and bad, they’ll all make you better at your next job.
Dan Koh, Chief of Staff
Without my first job, I wouldn’t be where I am now. At 13, I was hired to be a sting operator for the anti-smoking initiative at the local health community center. I rode in an unmarked car from location to location and tried to purchase cigarettes underage. I didn’t travel with an ID and wasn’t allowed to lie. During my first job, I learned that it’s important to be on time, that public servants help people, and that laws are important. Without the laws we have in place and the people enforcing them, a lot of 13-year-olds would be smoking — it was an eye-opening experience that time after time people sold me the cigarettes that summer.
During your first job, develop skills, make connections, and let yourself be impressed by folks. Even if it’s not suited for you it can be a great experience.
Patrick Brophy, Chief of Operations
My first job was at 14, when I was hired as a deckhand at Boston Harbor Cruises. My parents encouraged me to get the job, and I remember going out to the Harbor and filling out my application. Every day, I took a bus or a train to work — the 32 or the 50 to the Orange Line. I remember on my first day of work, I was completely confused and overwhelmed. I worked there for four years, and learned how to drive to a boat, and Boston’s history. But the most important things I learned were the importance of timeliness and having a purposeful schedule, and how vital the maritime industry is to Boston.