Decoding Your Paycheck
Your paycheck stub (or pay slip) shows your gross pay (what you earned before deductions) and your net pay (what actually hits your bank account). The difference is taxes and other deductions.
What's Deducted?
- Federal Income Tax — The federal government takes a percentage of your earnings. The exact amount depends on your tax bracket and how you fill out your W-4.
- State Income Tax — Most states also charge income tax. A few (like Texas, Florida, Washington) have none.
- Social Security Tax (6.2%) — Funds Social Security benefits for current retirees.
- Medicare Tax (1.45%) — Funds Medicare health coverage for people 65+.
Social Security (6.2%) + Medicare (1.45%) = 7.65% of your paycheck automatically goes to FICA (Federal Insurance Contributions Act). Your employer matches this 7.65%. Self-employed people pay both sides — 15.3% total.
The W-4 Form
When you start a new job, you fill out a W-4. This form tells your employer how much federal tax to withhold from each paycheck. If you withhold too little, you'll owe taxes in April. Too much, and you get a refund — but that means you gave the government an interest-free loan all year.
As a teen with one job and no dependents, the default settings on a W-4 are usually fine. If your income is low enough, you can claim "exempt" from withholding — this means no federal income tax is withheld. You're eligible if you owed no federal taxes last year and expect to owe none this year.
How Tax Brackets Work
The US has a progressive tax system — higher income gets taxed at higher rates. But here's what most people get wrong: only the income in each bracket is taxed at that rate, not your entire income.
- 10% on income from $0–$11,600
- 12% on income from $11,601–$47,150
- 22% on income from $47,151–$100,525
- 24%+ on income above that
Example: If you earn $20,000, you pay 10% on the first $11,600 ($1,160) and 12% on the remaining $8,400 ($1,008). Total: $2,168. Not 12% of everything.
Standard Deduction
Before tax brackets apply, you subtract the standard deduction from your income. For 2024, it's $14,600 for single filers. That means if you earned $20,000, you only owe taxes on $5,400 ($20,000 − $14,600). Very low earners may owe little to no federal income tax.
Filing a Tax Return
Every year, by April 15, most Americans must file a federal tax return reporting their income. This is how the government reconciles what you actually earned with what your employer withheld.
Do You Need to File?
If you're a dependent (claimed by your parents) and earned under $14,600 from a job in 2024, you generally don't need to file — but you should anyway if taxes were withheld, because you'll likely get a refund.
How to File
- Gather your W-2 form — your employer sends this by January 31. It shows what you earned and what was withheld.
- Use IRS Free File — if your income is under $79,000, you can file for free at IRS.gov.
- Or use free tax software — TurboTax Free Edition, H&R Block Free Online, or FreeTaxUSA all work well for simple returns.
- Submit electronically and choose direct deposit for the fastest refund (usually within 21 days).
File early. Tax refunds go to people who file first. Also, filing early protects against tax identity theft — scammers sometimes file fake returns using stolen Social Security numbers to claim refunds.
Self-Employment & Side Hustles
If you mow lawns, tutor, sell things online, or do freelance work, you're self-employed. The rules are different:
- No employer withholds taxes for you — you handle it yourself.
- You owe self-employment tax (15.3%) in addition to income tax.
- If you earn $400+ from self-employment in a year, you must file and pay taxes.
- You can deduct business expenses (supplies, equipment, mileage) to reduce taxable income.
If you earn cash from gigs, don't assume it's tax-free. The IRS requires you to report all income, cash or otherwise. Set aside 25–30% of side hustle income for taxes so you're not caught off guard.
Key Terms
Watch & Learn
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