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Understanding the Paperwork on the First Day of Your New Job

firstjobAfter the interview, salary negotiation, and getting hired, you will probably go to the Human Resource Department or see the Business Manager to handle some of the financial details of your job.  Here are some of the items you probably will face:

Income Tax Withholding
Unless you are hired as an independent contractor, every paycheck will have federal (and state) income tax withheld.  By having tax withheld, you will not have to pay everything all at once when you file your tax return.  To determine the amount your employer will withhold, you will probably have to complete the IRS Form W – 4.  On this form, you will be asked how many exemptions you want to claim.  The larger the number of exemptions, the smaller amount that will be withheld.  Unless there is something special about your income tax situation, you will probably just want to claim one exemption (yourself).1  Your state may also have a similar form.

Social Security and Medicare Withholding
Your wages are subject to Social Security and Medicare taxes that will be withheld from each paycheck.  For 2014, you will pay Social Security tax of 6.2% on your wages up to $117,000 and a Medicare tax of 1.45% on all your wages.  Single taxpayers with wages above $200,000 and married taxpayers with wages above $250,000 are also subject to an additional 0.9% Medicare surtax.  Your employer pays 6.2% in Social Security tax and an equal amount to your regular Medicare tax.  If you are an independent contractor or self employed, you are responsible for both amounts.

Direct Deposit
It is a good idea to enroll for this convenient service.  Instead of getting your paycheck, you can have your funds go directly into your bank account.  This saves you time and gets your money working for you even faster. If you have questions about setting up direct deposit contact your local banker.

Retirement Plan
If your employer has a retirement plan like a 401(k) plan, this will help you set aside savings from each paycheck.  You will probably have the ability to decide how much you want to contribute.  Your plan may also have a provision where the employer matches some or all of your contribution.  Be sure to understand the details and ask about the options available to you.

Other Employee Benefits
Many employers also offer health insurance, life insurance and disability insurance.  These policies are usually less expensive than what you could get by buying them as an individual.  Health insurance is almost always a must, and the others may be attractive if you need them.

Summary

Plan to spend some time evaluating your options and completing the paper work.  Ask questions about anything you do not understand, and if your situation changes, go back and ask more questions.  These things take some time and they will reduce what you have to spend.  But, they are very important.

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