Are you graduating from college this month? It’s an exciting time, especially if you’re about to start your first full-time job.

Sure, you’re familiar with work and paying taxes. You’ve held part-time jobs and summer internships. You may even have worked full-time through some or all of your college years to pay tuition and buy books. You’ve probably filed a 1040-EZ form before and gotten tax refunds.

But now you’re building a career, and you may have questions about federal income tax withholding, contributing to a 401k, and tax deductions. “How many?” “How much?” “How do I keep track of all this stuff?”


Here are a few pointers:

Withholding: On your first day of work, you’ll be asked to fill out a W-4 form. This will help your employer figure out how much federal income tax to take out – or withhold – from your paycheck each pay period. The amount is determined by your salary and the number of “allowances” you claim. Enter a “0” and you’ll have the highest amount withheld, in which case you may get a refund come tax time. Enter a “1” or higher, and you’ll have less withholding, but you also may end up owing money when it’s time to file your tax return. Use a withholding tax calculator to help determine the number of allowances you should claim. If you change your mind later, you can always fill out a new W-4 form.

401k: Fresh out of school with a newly minted degree, the word “retirement” is likely the furthest thing from your mind. But retirement savings are a way to reduce your taxable income. Think of them that way, if that will make you feel better. If you work for a company that offers a 401k plan (especially with a matching contribution), it’s a good idea to start saving as soon as you start working. Try to at least contribute enough to take full advantage of your employer’s matching contribution. Your contribution will automatically come out of your paycheck and you’ll never miss it. But it’ll be nice to watch it grow over time. That amount will also be deducted from your taxable income, which means you’ll pay less in taxes. In another year or two, if you’ve gotten a nice raise, or you’ve changed jobs for higher pay, you can kick up your contribution. Before long, saving for your future will become a habit.

Tax deductions: You’ll likely be able to take the standard deduction for the first few years of your career. If you’re paying back a loan, you’ll want to read up on the student loan deduction. As long as another taxpayer, say mom or dad, doesn’t claim you as a dependent, you can deduct up to $2,500 in student loan interest without itemizing.

When it comes to deductions, the key thing to remember is record-keeping. Keep documentation for medical and dental payments (including prescriptions, co-pays and insurance premiums), charitable contributions and, if you’re a teacher, out-of-pocket educator expenses. For that first job, you won’t be able to deduct job search expenses, but they do become deductible later.


OK, take a deep breath. Taxes are an inescapable fact of life and you’ll have plenty of time to get used to them. Because the tax laws change nearly every year, you should develop a relationship with a professional tax preparer who can help you navigate the ins and outs of the tax world. In the meantime, enjoy your graduation and welcome to your career.

By Denise Bridges