Starting your first job brings excitement about earning your own money, but it also introduces you to the world of taxes. Understanding how taxes work on your income helps you make better financial decisions and avoid surprises at tax time.

How Income Tax Works for New Workers

When you start working, your employer will have you complete Form W-4, which determines how much federal income tax gets withheld from each paycheck.

Federal income taxes use a progressive system, meaning higher income levels face higher tax rates. However, you only pay the higher rates on income above certain thresholds. For 2025, the first $15,000 of income for single filers is taxed at just 10%.

Your employer automatically withholds federal income tax, Social Security tax (6.2%), Medicare tax (1.45%), and potentially state income tax from your paychecks. This means you’re paying taxes throughout the year rather than owing a large sum when you file.

Your First Paystub Breakdown

Your paystub shows both gross pay (what you earned) and net pay (what you take home after taxes and deductions). Federal income tax withholding appears as “Fed Tax” or “FIT” on most paystubs. Social Security and Medicare taxes, collectively called FICA taxes, are fixed percentages that apply to most earned income.

State income tax withholding varies by state – nine states have no income tax, while others have rates ranging from 1% to over 10%.

When You Need to File a Tax Return

Most people with jobs need to file tax returns, but the requirements depend on your income level. For 2025, single filers under 65 must file if they earn more than $14,600 annually.

However, you should consider filing even if you’re not required to, especially if you had taxes withheld from your paychecks. Filing ensures you get back any overpaid taxes as a refund.

Understanding Tax Withholding vs. What You Actually Owe

Tax withholding is your employer’s estimate of what you’ll owe in taxes for the year, but it’s not always perfectly accurate. Your actual tax liability gets calculated when you file your tax return.

If too much was withheld, you’ll receive a refund. If too little was withheld, you’ll owe additional taxes. Young workers often receive refunds because the withholding system assumes you’ll work the entire year.

Common Tax Situations for First-Time Workers

Part-time workers and those with seasonal jobs often have simple tax situations with straightforward W-2 income. These situations typically result in refunds rather than additional taxes owed.

Multiple job holders face slightly more complex situations because each employer withholds taxes independently. This often results in under-withholding and additional taxes owed.

State Tax Considerations

State income taxes vary dramatically depending on where you live and work. Some states have no income tax, while others have rates that can significantly impact your take-home pay and tax liability.

If you live in one state but work in another, you might need to file tax returns in both states. However, most states have reciprocity agreements or provide credits to prevent double taxation on the same income.

Tips for Managing Your First Job Taxes

Keep all tax-related documents organized, including your W-2 from your employer, any 1099 forms for side income, and receipts for work-related expenses you might be able to deduct.

Consider using free tax preparation software or services designed for simple tax situations. Many young workers qualify for free filing through IRS Free File or volunteer tax preparation programs.

If you’re getting large refunds, consider adjusting your W-4 to have less tax withheld. While refunds feel nice, you’re essentially giving the government an interest-free loan throughout the year instead of having that money available for your own use.

Start building good financial habits by setting aside money for taxes if you have side income that doesn’t have automatic withholding. Freelance work, gig economy earnings, and cash tips all create tax obligations that you’ll need to handle yourself.

Building Long-Term Tax Knowledge

Understanding taxes early in your career sets you up for better financial decision-making as your income and complexity increase. The basics you learn now apply throughout your working life, even as you encounter more complex situations.

Consider taking advantage of tax-advantaged accounts like 401(k)s if your employer offers them. Even small contributions to retirement accounts can reduce your current taxes while building long-term wealth.

Learn about tax credits you might qualify for, such as the Earned Income Tax Credit for lower-income workers or education credits if you’re in school.

Common Mistakes to Avoid

Don’t ignore tax obligations for side income or gig work just because you don’t receive a W-2. All income is potentially taxable, and the IRS receives copies of most 1099 forms, so they’ll know about this income even if you don’t report it.

Don’t assume you don’t need to file because you didn’t earn much money. Filing ensures you get back any withholding that exceeded your actual tax liability, and it starts establishing your tax filing history.

When to Get Help

Consider professional help if you have complex situations involving multiple states, significant side income, or questions about dependency status. Many colleges offer free tax preparation assistance during tax season, and volunteer programs like VITA provide free help for people with lower incomes.

Understanding taxes on your first job income might seem overwhelming initially, but the concepts are manageable once you break them down. Starting with good tax habits and basic knowledge creates a foundation for making smart financial decisions throughout your career.