Your first paycheck
Understand the concept
Imagine you get your first job at a pizza place. You work hard, check your hours, and do the math. You earned $200! But when payday comes, your bank account shows less. Where did the rest go? Your paystub tells the story.
Why it matters in real life
GROSS PAY means the money you earned before anything gets taken out. NET PAY means the money you actually take home. Think of gross as the whole pizza and net as the slices left after some pieces are set aside.
Worked example
FEDERAL INCOME TAX: This is money your employer may send to the U.S. government from your check. It helps pay for things the federal government does, like roads, public programs, and services. Your Form W-4 helps your employer estimate how much to take out. You might get some income tax withholding back when you file a tax return, but a refund is not automatic.
SOCIAL SECURITY TAX
SOCIAL SECURITY TAX: This helps pay benefits for people who are retired, some people with disabilities, and families who have lost someone who supported them. For most jobs, employees pay 6.2% of covered wages, up to a yearly limit. On $200 of covered wages, that would be $12.40. Your employer generally pays a separate share too.
MEDICARE TAX
MEDICARE TAX: This helps support health insurance mainly for people age 65 and older, and some younger people who qualify. For most jobs, employees pay 1.45% of covered wages. On $200, that would be $2.90. Your employer generally pays a separate share.
STATE INCOME TAX
STATE INCOME TAX: Some states take income tax out of paychecks too. Texas does not have a personal state income tax, but other states may. Where you live and work can change what you see.
NOT EVERYTHING TAKEN OUT IS A TAX
NOT EVERYTHING TAKEN OUT IS A TAX. Your paystub might also show health insurance or money going into a retirement savings plan. Those are different from taxes. Read the name next to each amount to learn where it goes.
LET’S PUT IT TOGETHER
LET’S PUT IT TOGETHER: You earn $200. Imagine $10 is taken out for federal income tax, $12.40 for Social Security, and $2.90 for Medicare. That leaves $174.70 in your check if nothing else is deducted. Your real check could look different depending on your job and situation.
QUICK TIP
QUICK TIP: Social Security and Medicare taxes usually do not come back just because you file a tax return. They work differently from federal income tax withholding. Now you know why “I earned $200” and “I got paid $200” are not always the same thing.
Practice scenario
You earn $200 at your weekend job. Your sample paystub shows $10 for federal income tax, $12.40 for Social Security, and $2.90 for Medicare. Your take-home pay is $174.70.