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Understanding your first paycheck (and why it’s so much smaller than you thought) – CNBC

Inside Creative House | Istock | Getty Images

You get your first job out of college. You can finally breathe a sigh of relief — you have post-grad plans! You can confidently answer that nerve-racking question: What are you d…….

Inside Creative House | Istock | Getty Images

You get your first job out of college. You can finally breathe a sigh of relief — you have post-grad plans! You can confidently answer that nerve-racking question: What are you doing after graduation?

But as soon as you accept that job offer, the train leaves the station pretty quickly! A whole lot of big financial decisions come at you fast like getting an apartment, paying your bills and setting up a budget to make sure your math checks out.

One of the most shocking things is when you get that first paycheck — and how small it really is! You knew some taxes would be taken out but most of us are unprepared for how much really comes out.

“A lot of times when people accept their new job offer, they think, ‘Oh my goodness,’ like $40,000 a year is like winning the lottery when you’ve gone from making like $4,000 a year over the summer, you know?” said Sophia Bera, a financial advisor at Gen Y Planning. “And so I think what people don’t realize is, then how little that actually translates to in their net pay.”

Let’s do the math

Say you agree to a salary of $65,000. What is your actual take-home pay?

The biggest chunks that come out are taxes — both federal and state. And, if you work in New York City, like so many college grads dream of, you also pay New York City tax.

Federal tax rates are fixed and you can check your brackets here. So, for example, if you make $65,000 in 2022, your federal tax rate would be 22%, plus 5.97% New York state tax. New York City tax is another 3.8%, so you are looking at nearly 32% in taxes.

Taxes vary from state to state, but they typically range from 0% to 13%. (Seven states have no income tax!) California, Hawaii and New Jersey have the highest income taxes in the country, while Florida, Alaska and Texas are among those with no income taxes. 

More from College Money 101:
10 tips for negotiating your first job offer (and every one after that!)
An easy guide to help college students set up their first budget
Feel like you’re broke all the time? Here’s how you can change that

Additionally, Social Security and Medicaid are withheld from your paycheck during every pay period. Withholdings are an amount from your paycheck taken out to pay federal income taxes. They are dependent on not only your income, but also your number of dependents, which, if you’re right out of college, is typically 0 or 1.

Pretax items like health-care …….

Source: https://www.cnbc.com/2022/04/20/understanding-your-first-paycheck-and-why-its-so-much-smaller-than-you-thought.html

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