← Money Basics After High School · about 50 min
Paychecks and budgeting
Why your paycheck is smaller than you expected, and how to plan every dollar of it.
Gross pay vs. net pay
Your job offer says $17 an hour. Your paycheck says less. Here's where the money goes.
- Gross pay
- What you earn before anything is taken out. Hourly wage × hours.
- Net pay (take-home)
- What actually lands in your bank account.
- Federal income tax
- Tax to the U.S. government, based on your yearly income. How much gets held back each paycheck depends on your W-4.
- Social Security (FICA)
- 6.2% of your pay, up to $184,500 a year (2026). It funds retirement and disability benefits.
- Medicare (FICA)
- 1.45% of all your pay. It funds health insurance for people 65 and older.
- State and local tax
- Depends on where you live. Some states have no income tax.
- Pre-tax deductions
- Things like a 401(k) or health insurance that come out before income tax, which lowers your tax.
How tax brackets really work
First, the standard deduction: the first $16,100 you earn in a year isn't taxed at all (Tax year 2026, single filer). What's left is your taxable income.
Then each slice of taxable income is taxed at its own rate. Moving into a higher bracket only raises the rate on the dollars inside that bracket, never on all your money. A raise never makes you take home less.
| Taxable income | Rate on that slice |
|---|---|
| $0 – $12,400 | 10% |
| $12,401 – $50,400 | 12% |
| $50,401 – $105,700 | 22% |
| $105,701 – $201,775 | 24% |
| Over $201,775 | 32% – 37% |
Worked example: a full-time $17/hour job
Maya earns $17 an hour, works 40 hours a week all year, files single, and lives in a state with no income tax. What does she take home?
- Gross pay for the year
$17 × 40 × 52 = $35,360 - Subtract the standard deduction
$35,360 − $16,100 = $19,260 taxable - Federal tax: 10% on the first $12,400, 12% on the rest
$12,400 × 0.10 + $6,860 × 0.12 = $1,240 + $823.20 = $2,063.20 - Social Security, 6.2% of gross
$35,360 × 0.062 = $2,192.32 - Medicare, 1.45% of gross
$35,360 × 0.0145 = $512.72 - Take-home for the year
$35,360 − $2,063.20 − $2,192.32 − $512.72 = $30,591.76 - Per month
$30,591.76 ÷ 12 = $2,549.31
Maya's take-home pay is about $2,549 a month. That's the number to budget with, not $35,360 ÷ 12 = $2,947.
Your first W-4
On your first day you'll fill out a W-4. It tells your employer how much federal tax to hold back from each check. It is not a bill. If too much is held back, you get a refund. If too little, you owe in April.
- Step 1: name, address, Social Security number, filing status (most new grads: Single).
- Steps 2–4: skip them if you have one job, no kids, and no other income. That's allowed and is the most common choice.
- Two jobs at once? Fill in Step 2 or use the IRS Tax Withholding Estimator so you don't owe at tax time.
- Step 5: sign and date it.
- Never write "exempt" just to get bigger checks. It only works if you owed no tax last year and expect to owe none this year.
Budget frameworks
A budget is a plan for your take-home pay before you spend it. Pick the method you'll actually stick with.
| Method | How it works | Good for |
|---|---|---|
| 50/30/20 | 50% needs, 30% wants, 20% savings and paying off debt | A simple starting point |
| Zero-based | Give every dollar a job until income − plan = $0 | Tight budgets, people who like detail |
| Pay yourself first | Automatically move savings out on payday, then spend the rest freely | People who hate tracking |
| Envelope | Cash (or separate accounts) for each category; when it's empty, you're done | Overspending on food or fun |
The 50/30/20 split was popularized by Elizabeth Warren and Amelia Warren Tyagi in All Your Worth (2005).
Build your budget
Use a real job you might get: look up the hourly wage for a job posting near you.
Paycheck → budget builder
| Gross pay | — |
|---|---|
| 401(k) | — |
| Federal income tax | — |
| Social Security (6.2%) | — |
| Medicare (1.45%) | — |
| State income tax | — |
| Net pay (take-home) | — |
Your month on the 50/30/20 plan
Estimate for a single filer with one job, using the tax year 2026 standard deduction ($16,100) and brackets. Real withholding depends on your W-4. Local taxes are not included.
Practice
You earn $15/hour and work 20 hours a week. What's your weekly gross pay, and how much goes to Social Security and Medicare?
Show answer
Gross: $15 × 20 = $300. Social Security: $300 × 0.062 = $18.60. Medicare: $300 × 0.0145 = $4.35. Together $22.95.
Your take-home pay is $2,000 a month. Split it with 50/30/20.
Show answer
Needs $1,000, wants $600, savings and debt $400.
Your taxable income is $18,500. Use the brackets to find your federal tax.
Show answer
$12,400 × 0.10 = $1,240, plus ($18,500 − $12,400) × 0.12 = $6,100 × 0.12 = $732. Total $1,972.
A friend turns down a raise because "it'll bump me into the next bracket and I'll take home less." True or false?
Show answer
False. Only the dollars above the bracket line get the higher rate. You always keep most of a raise.
Is a phone bill a need or a want? Streaming services?
Show answer
A basic phone plan is usually a need (work, safety). Extra data, the newest phone, and streaming are wants. Reasonable people draw the line differently; the point is to decide on purpose.
Can you…
Sources and dates
- IRS: tax inflation adjustments for tax year 2026 (Rev. Proc. 2025-32) · as of Tax year 2026
- SSA: 2026 Social Security changes fact sheet · as of 2026
- IRS: Topic 751, Social Security and Medicare withholding rates · as of 2026
- IRS: Form W-4 and Tax Withholding Estimator · as of Oct 2026