Tax Planning

Tax Planning for Your First Job

Learn how to reduce taxable income and perfect your withholding allowance before it's time to file your first 1040 tax return.

June 2010

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.

You'll owe federal income taxes at rates that range between 10% (on your first $8,375 of taxable income in 2010 if you're single) to 35% (for amounts over $373,651). Social Security and Medicare taxes will claim 7.65% of your first $106,800 of salary in 2010, starting from dollar one. After that, the 1.45% part of the 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.

Job-hunting expenses. 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 exceed 2% of your adjusted gross income.

Moving expenses. 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 iteming. The key is that your new job be at least 50 miles away from your old home. In addition to the cost of moving your household goods, if you drive your own car you can write off 16.5 cents a mile in 2010.

Get withholding right. This is something most workers -- whether on their first job or 20th -- fail to do. We know that because nearly 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 hold withholding down to the legal minimum. Also, 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.

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