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Posted October 25, 2016 by

Decoding your paycheck: What recent college grads should understand

Money saved for college with a small graduation cap

Photo courtesy of Shutterstock.

Recent college grads and entry-level job seekers are often excited to get that first paycheck. But they are also shocked when they suddenly realize the amount of that check may not be what they thought it would be. Remember when Rachel from Friends sees her first paycheck? (“Who is FICA and why is he getting all my money?“) Understanding how to decode your paycheck can help recent college grads become fiscally responsible.

“Educating yourself on how to read your pay stub and understand the information it contains can be the key to effective money management and proper budgeting,” says Brian Michaud, Senior Vice President, Client Service, ADP TotalSource.

Below, Michaud helps decode your paycheck, and understand just where all your money goes:

Gross and Net Pay
The two main components to understand are Gross Pay and Net Pay:

  • Gross Pay: Gross pay is the total amount of wages you’ve earned for the pay period (a pay period is determined by your employer). This is typically bi-weekly or monthly. It’s your regular pay plus any other wages you earn, such as overtime pay or bonuses. Your taxes are based on gross pay.
  • Net Pay: Net pay is the amount of money you actually receive on payday, or your “take home pay.” It’s your gross pay minus all deductions and all federal, state, and local taxes.

The basic components of a paycheck

  • Federal tax: When you are first hired by your employer, you are required to fill out a Form W-4. This form covers any tax that you may owe to the Federal government come tax time. It is deducted incrementally from each paycheck, and varies depending on how many exemptions you claimed.
  • State tax:  If your state has a tax, this amount is deducted from your paycheck the same way as Federal tax to cover the amount of tax that you may owe to the state when your tax return is filed.
  • Local Tax: Although rare, a local tax is sometimes applied to employees of certain cities, counties or school districts. For example, if you live in New Jersey, but work in New York City, you will be required to pay not only New Jersey state tax, but also New York City tax on your earnings.
  • FICA:  FICA stands for Federal Insurance Contributions Act and refers to amounts deducted for Social Security and Medicare taxes.
  • Retirement Plan Contributions:  Plans such as 401(K) or 403(B) retirement savings plans will deduct the percentage you decide to contribute from each paycheck.

Here are a few items that you might find on your paycheck stub:

  • Insurance Deductions:  This is the monthly payments for such types of insurance as health (medical and dental) and life insurance.
  • Leave Time:  This includes vacation hours or sick hours. Most employers will detail how many hours have been used to date, and how many hours are remaining for the calendar year.
  • Childcare Assistance: If offered by your employer, this amount may appear on each paycheck as a pre-tax benefit.
  • Year-to-date (for pay and deductions): The year-to-date fields on your paycheck stub show how much you have paid toward a particular withholding at any point in the calendar year.
  • Important Notices: Employers often use the paycheck stub to communicate important pieces of information to their employees, such as wage increases or notifications about tax filings.

Related: How the new overtime laws will affect interns and recent college grads

Understanding pre-tax contributions/savings
In a 401(k), you contribute “pretax” dollars, which means your contributions are taken from your paycheck before your income is taxed. This matters because, with that contribution set aside from the total paycheck before taxes, a smaller amount is taxed thereafter. Depending on your tax bracket, this could lower your taxable income while simultaneously saving money for retirement.

Suggestions for recent college grads

  • Have a conversation with your parents: Determine what your taxation status is. Based upon the timing of your job, you may still qualify as a dependent for their taxes. Have a conversation regarding the standard dependent deduction vs. filing on your own based on the timing of getting the job, says Michaud.
  • Review benefits: Along those same lines, make sure that you are reviewing benefit offerings with your parents.  If you are under 26 years old, compare the cost and benefits offered by your parent’s plan to your employer’s plan, and what is available on the public health care exchanges. You might qualify for a credit on the exchange, says Michaud.
  • Calculate withholdings: Make sure that you calculate appropriately for Federal, State and, if applicable, Local tax withholding. Review your taxation calculations and ensure that you don’t under or severely over withhold. Federal taxation and state taxation can have very different rules and rates.

Many recent college grads are only concerned about the bottom line of their paycheck – the take home pay. But understanding where your hard-earned money goes, and how to maximize savings, is a good start for recent college grads planning for the present and future.

“Knowing where your money is going can help you stay on top of your finances and make the most of your hard-earned paycheck,” says Michaud.

Want to keep up on the latest career and job search tips and trends for recent college grads? Stay connected to College Recruiter by visiting our blog, and connecting with us on LinkedIn, TwitterFacebook, and YouTube.

Brian Michaud, Senior Vice President, ADP TotalSource®

Brian Michaud, Senior Vice President, ADP TotalSource®

About Brian Michaud, Senior Vice President, Client Service, ADP TotalSource®
Brian Michaud is senior vice president of ADP TotalSource®, ADP’s Professional Employer Organization (PEO).  He and his team manage the company’s Human Resources Business Process Outsourcing (HRBPO) practice for small to midsized business owner clients, which delivers HR management, benefits administration, time and attendance, and payroll services as one Human Capital Management solution. Michaud started with ADP in 1991 as a sales representative for its Small Business Services business and joined the TotalSource business in 1999.

Posted December 19, 2014 by

10 mistakes that should be avoided when negotiating a salary

"Before you start negotiating for your client. I should remind you this job only pays $30,000."

“Before you start negotiating for your client. I should remind you this job only pays $30,000.” Photo courtesy of Shutterstock.

Whether you’re a newbie at hunting for the perfect job or a seasoned professional, whether you hate salary negotiations or love them, the truth is it’s important to master salary negotiation strategies. Avoiding traps is essential to landing an offer that you deserve. Here are 10 mistakes you should steer clear of when bargaining salary terms. (more…)

Posted November 22, 2013 by

Good & Bad Examples of Salary Negotiations

Aaron Gouveia

Aaron Gouveia, Salary.com contributing writer

Ever wonder what works and what doesn’t regarding salary negotiation and asking for a raise? We asked you, our readers, about your last negotiating experience and it was easy to see what worked, what didn’t, and why.

Here are some real-life examples of salary negotiations along with our advice about what they did right, wrong, and how they could’ve handled things better. (more…)

Posted November 22, 2013 by

4 Options for Relief From Your Staggering Student Loan Debt

Young female college student lifting a student loan sign

Young female college student lifting a student loan sign. Photo courtesy of Shutterstock.

If you’re saddled with overwhelmingly high student loan debt, you aren’t alone. The Consumer Financial Protection Bureau reports that some of the most common complaints it receives deal with the difficulties of making payments on loan balances. Below are four smart strategies to help you get out from under the weight of your student loans.

Pay Off Variable-Rate Private Loans First

A private loan may have come with a low interest rate when it was first signed, but unlike federal loans, they can climb by several interest points over the years. Private loans also offer fewer payment options to borrowers. If you have a private variable-rate loan, pay it off first and as quickly as possible. As the economy shifts, the interest on these loans can spike suddenly, whereas the rates on fixed federal loans cannot. (more…)

Posted October 31, 2013 by

Don’t Think You Earned that Entry Level Job? The Reason You Feel This Way

So, you won the entry level job, but still have some doubt about your qualifications.  Why do you have this unusual feeling?  There is one reason according to the following post.

That thing where you’re a relatively high-level professional who can’t help but think you don’t deserve to be where you are? … I believed I got the job based on looks first, skills second, and I may or may not have been right. … when the difference between a polite rejection and a modest salary is mostly luck

Originally from:

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Posted October 18, 2013 by

7 Things Never to Say When Asking for a Raise

Aaron Gouveia

Aaron Gouveia, Salary.com contributing writer

Oh, you want a raise? Congratulations, you’re now in an elite group of American workers known informally as EVERYBODY!

Seriously though, let’s get into a little tough love for a minute. We know you want a raise, but have you really stopped to think about whether or not you deserve one? What’s more, have you gone over what you’re going to tell your boss when he/she asks why you deserve more money? Too many employees haven’t, and as a result are disappointed when they’re denied.

Believe me, we want you to negotiate and get more money. We’re Salary.com so that’s pretty much why we’re here. But convincing an employer to give you a raise is all predicated on showing them you’ve gone above and beyond the call of duty, and making sure they believe you’ll continue to do so in the future. It’s about exceeding expectations, not just meeting them. So with that mind, here are seven reasons you should NEVER give your boss when asking for more money. (more…)

Posted October 03, 2013 by

What’s Hormones Got to Do With It?: How Your Hormones Can Affect Your Job Interview Performance

Recruiter observing job candidate during an interview

Recruiter observing job candidate during an interview. Photo courtesy of Shutterstock.

You’ve done everything you can think of to prepare for your job interview: You’ve researched the company you want to work for, practiced answers for interview questions that may come your way, and bought a dress-for-success outfit to wear. You think you’ve tackled the job interview from every angle, but there may be one thing that can affect your performance that you haven’t considered — your hormones. (more…)

Posted September 16, 2013 by

Job Offers Are Not Always Negotiated By Employees

While job seekers may put a lot of effort into their job searches, they may not necessarily think as much about negotiating upon receiving job offers. Did you know that nearly half of workers accept offers without negotiation? This is understandable since many people just want to find employment.  The following post takes a closer look at this issue. (more…)

Posted October 24, 2012 by

How to Make Sure “Binders Full of Women” Get Equal Pay

Jim Hopkinson

Jim Hopkinson, Salary.com contributing writer

Politics. Women. Money.

When you’re talking about those three subjects, you’re either watching a Presidential debate or sitting at a very interesting dinner party.

One of the hot topics coming out of the October 16 town hall presidential debate was the subject of fair hiring practices for women. As Mitt Romney told a story about his push to hire more women in his cabinet, he uttered the phrase “Binders full of women” in reference to the stacks of resumes of qualified candidates that were brought to him. (more…)

Posted August 31, 2012 by

10 Salary Negotiation Myths

Jim Hopkinson

Jim Hopkinson, Salary.com contributing writer

A rough translation of a myth could be “a legendary story, usually concerning a hero or event, especially one that is concerned with deities or some practice, rite, or phenomenon of nature.”

Many people play up salary negotiation as some kind of mythical exploit, as if a Cyclops from human resources was guarding a 10 percent salary increase. Perhaps only few select heroes can effectively navigate this rite of passage and pierce the heavily guarded castle.

In reality, as author Selena Rezvani puts it, a negotiation can simply be “a conversation that ends in agreement.” So before you retreat back over the drawbridge, let’s take a look at the other definition of a myth — a falsehood — and see if we can come out victorious. (more…)