Now that you've entered the full-time workforce, you'll enjoy getting steady paychecks, and so will your partner... Uncle Sam. Becoming a wage earner means becoming a taxpayer, too.
See Also: Tax Planning for Life's Major Events
Becoming a wage earner means becoming a taxpayer, too. You'll owe federal income taxes at rates that range between 10% (on your first $8.700 of taxable income in 2012 if you're single) to 35% (for amounts over $388,350). Social Security and Medicare taxes will claim 5.65% of your first $110,100 of salary in 2012, starting from dollar one. (That rate is lower than normal because it reflects the 2 percentage point payroll tax holiday in effect for 2012.) If your earnings pass $110,100, the 1.45% part of the payroll tax that pays for Medicare continues no matter how high your earnings. State income taxes depend on where you live.
But taxpaying is not all a one-way street. There are ways to save, too.
Unfortunately, you can't deduct the cost of looking for your first job. When you change jobs, though, expenses such as the cost of printing résumés and travel to job interviews are deductible, as long as you're looking for a job in the same line of work. Such costs are "miscellaneous expenses," which means they are deductible, if you itemize, to the extent they and any other miscellaneous expenses exceed 2% of your adjusted gross income.
You can deduct the cost of job-related moving expenses even if it's for your first job and even if you claim the standard deduction rather than itemizing. The key is that your new job be at least 50 miles farther from your old home than your old job was. In addition to the cost of moving your household goods, you can write off the cost of driving your own car. For moves in the first half of 2011, you can deduct 19 cents a mile; for moves in the last six months of 2011, the mileage rate is 23.5 cents a mile; for moves in 2012, the rate is 23 cents a mile.
Get withholding right.
This is something most workers — whether on their first job or 20th — fail to do. We know that because more than 100 million taxpayers get tax refunds every year — proof positive that they had too much withheld from their pay. When you start a job, you'll be asked to fill out a Form W-4. That little piece of paper controls how much federal income tax will be taken out of each check for the IRS. The amount is based on your salary and the number of "allowances" you claim on the W-4. Take the time to read the instructions carefully to be sure you claim as many allowances as possible. That will limit withholding to the legal minimum. For a quick answer, try our withholding calculator.
If you're starting a job in midyear (as college grads often do), consider asking your boss to use the "part-year method" for figuring withholding for the rest of the year. This method basically sets withholding based on how much you'll actually earn rather than on 12 times your monthly salary. That can put more money in your paycheck when you are starting out and can probably really use the dough.