Your first paycheck, explained

By Jamie Savvy · Educational only, not financial advice

You worked the hours. You did the math. Then your first paycheck shows up and it’s less than you expected. Where did the rest go?

Don’t worry, nobody took your money by mistake (probably). Here’s what’s happening and how to read your pay stub.

Gross pay vs. net pay

These are the two most important words on a pay stub.

Gross pay is what you earned before anything is taken out. Hours worked times your hourly rate, plus any overtime or tips that run through payroll.
Net pay is what you actually receive after taxes and other deductions. This is sometimes called take-home pay.

The difference between the two is your deductions. When you plan a budget, always use net pay. That’s the money you really have.

What gets taken out

Every job and state is a little different, but in the U.S. these are the common ones:

Federal income tax. Money withheld for the IRS. How much depends on what you earn and what you put on your W-4 form when you were hired.
Social Security and Medicare. Often shown together as FICA. These fund programs you may use later in life.
State and local income tax. Depends on where you live. Some states don’t have one.
Other deductions. Some jobs take out money for uniforms, benefits, or retirement plans. Your stub should list each one.

How to read your pay stub

Your pay stub (paper or in an app) usually has these parts:

Pay period: the dates you’re being paid for. Your check often covers work from a week or two earlier.
Hours and rate: check these against your own record. Mistakes happen, and it’s fine to ask about them politely.
Gross pay, deductions, net pay: what you earned, what came out, and what you got.
Year-to-date (YTD): totals since January 1. Handy at tax time.

Keep a note of your hours each shift. It takes ten seconds and makes it easy to spot an error.

The W-4 and tax time

When you start a job, you’ll usually fill out a W-4 form. It tells your employer how much federal tax to withhold. If you’re not sure how to fill it out, ask a parent or check the IRS website. Don’t guess.

After the year ends, you’ll get a W-2 showing what you earned and what was withheld. Depending on how much you made, you may need to file a tax return, and you might get some of the withheld money back as a refund. A parent or a free tax-prep tool can help with your first one.

Direct deposit and your first bank account

Most employers pay by direct deposit, so you’ll need a bank account. If you’re under 18, you may need a parent to open one with you. Look for an account with no monthly fees, and turn on alerts so you see every deposit and purchase.

Never share your account login, PIN, or the codes your bank texts you, even with someone who says they’re from your job or your bank. That’s a common scam.

What to do with your first paycheck

It’s tempting to spend it all. Go ahead and enjoy some of it. You earned it. But try this simple plan:

Move a set amount to savings the day you get paid.
Cover anything you’re responsible for, like your phone or gas.
Spend the rest on what you want, guilt-free.

That’s a budget. If you want a step-by-step version, see budgeting for teenagers.

For parents

Sitting down with your teen to look at their first pay stub is one of the best money conversations you can have. It’s real, it’s their money, and they’re paying attention. More ideas on how to teach teens about money.

Learn more

The Ultimate Handbook on Teen Personal Finance covers taxes before your first job, budgeting what’s left, and earning more beyond an allowance. Start with a free sample of Chapter 2. This article is for general education and isn’t tax advice; rules change, so check the IRS or a tax professional for your situation.

Keep reading: How to teach teens about money (without a lecture) · Budgeting for teenagers: a simple 5-step plan · For parents