Understanding Payroll Taxes for Your First Full Time Job 

student in her first apartment

Keith Rucinski
Chapter 13 Trustee
Akron, OH

There is nothing like graduating from school.  No more staying up all night writing a term paper or cramming for a test.   No more anxiety about that final exam and hoping you passed the course.  It is now time for the “real world” and your first full time job.

You will show up for your first day of work expecting to take on the world.  Instead, you will be spending the day in human resources filling out a mountain of paperwork.

Included in that paperwork will be:

An I-9 form.   This is a required federal government form where you need to show you are eligible to work in the United States.   You will need to complete the form detailing your name, address, and social security number.   You should be sure to have picture identification such as a valid state drivers license or state issued identification card. You should also bring your social security card.

Now the important paperwork, the W-4 form.  This form is where you declare what tax status you want to claim and have proper tax deductions taken from your paperwork.

The first is your status.   Are you single or married?  Payroll withholding taxes have different rates for single and married individuals.

If you are single, you next have to state the number of your dependents (the people who rely on you for support).   Generally speaking, if you are just out of school and single, your only dependent is yourself, so you put down one.  The higher number of dependents lowers your payroll tax withholding.   If you incorrectly put down a high number of dependents you will lower your tax withholding and increase your take home pay each payday.   The problem is when you file your taxes you will only be able to claim yourself as a dependent.   If you did not have enough payroll tax withheld through the year, you will now have to pay that tax in a lump sum payment with money you already spent. The IRS is very accommodating and will let you make payments on the tax owed.   You will just have to pay the tax owed plus penalty (which can often more than double the amount you owe) plus interest on top of that tax and penalty.  It is best to pay the tax owed each pay-day. 

 As a practice tip, a single person should put single and zero dependents to ensure you pay enough tax throughout the year.  You may receive money other than from your full-time job which may not deduct any taxes.   For example, you may take on a side hustle and do gig work as a sub-contractor.   Sub-contractors are not employees, and therefore there is no payroll tax withheld.  However, businesses will report the income paid to you to the IRS and issue you a 1099 tax form for the money paid to you.    By claiming one less dependent than you are entitled to claim, it will help reduce or eliminate any income tax you will owe from your side hustle.

If you are married, your status is married.  Spouses often claim each other as dependents.  However, if both you and your spouse work, this can often result in you owing taxes at the end of the year.  Each spouse should choose married and one (or zero if you want a larger tax refund at the end of the year).  In most cases, spouses will file taxes jointly for the best refund (a good tax preparer will check both filing jointly and separately to see which filing gets you the best refund under your circumstances.)   If you have children, it is often best to have only one spouse claim the child as a tax withholding deduction on their paycheck.

Taxes are complicated and require lifelong learning to make adjustments as your circumstances change.  However, it is generally much better to get a tax refund when you file your taxes than having to be put on an IRS payment plan for unpaid taxes.

** Links to the mentioned IRS forms are for informational purposes.

A public education project of the National Association of Chapter Thirteen Trustees

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