Summer jobs: A window into wages, taxes, and cost of living
May 21, 2014
Every summer, millions of high school students just like you hit the streets looking for work – in restaurants, malls and offices.
This year, it might be a little easier to find a job since the unemployment rate has dropped below 7 percent. This means that fewer people are looking for jobs than there were last year, increasing the chances of you finding one.
Once you have a summer job, it’s time to start raking it in. You might be saving for a car or for college, helping the family, or just looking for extra spending money, If you are seeking experience for future career opportunities, internships can help you.
When the first paycheck arrives, you might be in for a shock – it’s less than you expected! A huge chunk is missing, but don’t look to your boss to find it.
That gap between what you thought you would get paid and what you actually get paid is money that goes to the government. It’s your income tax, which is basically your contribution to keep the government running and its public services – such as roads, parks, public health and the military – available.
The amount that the federal, state and local governments take out of your paycheck is based on how much money you make. The more you earn, the higher the percentage of your wages you pay in taxes, from 10 percent for the lowest income bracket to 35 percent for the highest bracket. The amount also varies depending on whether you are single or married, have children (or other “dependents” whom you care for), or are over the age of 65.
If you’re getting a paycheck for the first time, a quick glance at your pay stub – a form attached to the check – will tell you where all the money goes. You’ll see one amount listed under “gross pay”; that’s the amount that you get paid before taxes get taken out. You’ll see another amount listed under “net pay”; that’s the amount you’re actually getting after taxes.
In between, you might see other items listed, and corresponding dollar amounts. This is the money that’s been taken out of your pay – the technical term is “withholdings” – and the pay stub is there to give you a dollar-by-dollar breakdown of what was deducted. You’ll see your federal tax, your state tax and your local / municipal tax high up. Then, if you are earning more money, you’ll see other withholdings such as Social Security – it might be labeled something like SST or FICA. This is a retirement benefit you receive from the government: Throughout your working life, the government takes money from each paycheck, so you’ll have savings when you retire. Basically, it’s money you get back, but not until much later in life. Likewise, the money that goes to your Medicare withholding comes back to you, but in the form of government health care when you’re a senior citizen and no longer working.
Confused? You aren’t alone! Many citizens seek out the help of tax professionals every year to help them fill out their tax forms. For more information on how the federal tax process works, check out the Internal Revenue Service website at www.irs.gov. And happy summer vacation!
What do you think?
Do you have a summer job or are you trying to get one? What kind of work would be your optimal summer job? How will taxes and other withholdings affect you now and in the future? Join the discussion and let us know what you think!
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