Wednesday, September 23, 2009
A paycheck primer
Information about taxes can help teens make sense of their dollars and cents.
Congratulations! The dozens of applications you filled out during the summer finally have paid off, and you've landed your first job and entered the work force.
The next two weeks are spent waking up early and staying up late, scooping ice cream rather than seeing a movie with your friends, or selling a pair of jeans when you could be shopping for your own fall wardrobe.
But those endless hours that have robbed a little piece of your carefree, teen spirit are about to be redeemed. You eagerly tear open the envelope containing your first paycheck and read the anticipated total with satisfaction.
That is, until you notice the several minus signs on the check, only to be followed by a significantly smaller, less gratifying total at the bottom of the check.
Don't worry, you didn't do anything wrong. The withholdings from your paycheck are taxes that everyone is required to pay to the government, no matter their age.
Wesley Maxwell, 19, of Salem, remembers being upset when he received his first paycheck at age 16.
"I understand that taxes are important," Maxwell said, "but I'd like to at least know where it's going and how my money is really being spent."
Maxwell works at a U-Haul business in Salem.
Martin Burch, 18, of Botetourt County, also wants to know, "Where's it all going? That's exactly what I'm wondering. I mean, I could use that money myself, you know."
Burch works at American Eagle in Valley View Mall in Roanoke.
Ann Kakouras, an associate professor of accounting at Virginia Western Community College, offers some insight into taxes for teen employees.
"The biggest mistake most teens make is that they think all of this amount of money has to come out," Kakouras said. "What you don't realize is that you can control some of what is taken out."
She said you can do this through filing for exemptions on the W-4 tax form, which teens fill out when they begin their jobs.
Each deduction out of the paycheck is the government's estimation of how much you owe them, based on your exemption status.
The exemption status varies according to different criteria, including age, and determines the percent you owe in taxes.
When you file your tax return, you may find that too little was withdrawn from your paycheck (if your exemption status was high), meaning you owe the government money.
However, teens, who usually have a low exemption status of 0 or 1, will likely find that the government took out too much and now owes them a refund.
Kakouras suggests adjusting your exemption status to match your tax liability.
"You'll get the money back either way," but with a low exemption status, you won't get it back until tax return season, and "that should have been money you had throughout the year," Kakouras said.
Rather than letting the government borrow your money, interest-free, for the entire year, she encourages teen employees to "pay close attention to that W-4 form," so you can keep the money in the first place.
Kakouras also has some other words of advice. "This list of tax deductions only gets bigger and more complicated as you get older," she said with a laugh.
However, with teen unemployment rates at a high nationally -- at 25.5 percent -- some teens may think that simply receiving a paycheck is a blessing, even with those minus signs attached.
The Web sites www.myfoxphoenix.com and the U.S. Bureau of Labor Statistics, www.bls.gov, contributed to this article.





