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Your first couple of days on the job may be spent taking care of important (but tedious) employment paperwork. It's helpful to actually know something about tax options and employee benefits before making up your mind.
Taxes and Deductions
One of the first things you'll be asked to do is fill out your tax forms and make a choice about deductions. This is one of the toughest decisions for employees, because it affects your take-home pay and determines whether or not you owe taxes come April. You'll be asked to claim between zero and at least four dependents.
Note: Dependents are people who depend upon your income. This does not include your mooching friends or your credit card company.
If you're single, you'll choose either zero or one -- you can claim yourself as a dependent. If you choose one, less money will be withheld from your paycheck for taxes, so your take-home pay will be higher. But since the government is not taking the money out of each check, you may not receive a refund at the end of the year. You might even owe money in April, which could truly dampen your spring.
By claiming zero dependents, your take-home pay will probably be lower, but plenty of money is withheld for taxes. This increases your chances of receiving a sizable refund at the end of the year, which can be a nice windfall. The choice is yours.
Insurance
Benefits plans vary from company to company. Unfortunately, there are no hard-and-fast rules for choosing insurance. If there is something to consider, it's that you should get the most coverage you can for the least amount of money. If you use health insurance even once, it will more than pay for itself.
Don't skimp and think, "I never get sick, so I'll choose the cheaper plan." Often the price difference is small, but the amount of coverage on the more expensive plan is great enough to make it a better deal. And please don't look at insurance as money you'll never see. If you ever really need it, insurance will be worth every penny.
Employer-Sponsored Savings Plans (401k, 403b or 457)
Retirement may not be something you are thinking about at 22, but do you really want to be working when you're 65? While stock options sound sexy, the fact is they aren't as commonly offered as you might think. However, many companies do offer savings plans like 401k or similar retirement packages.
A 401k is a tax-deferred investment plan that allows you to place money in a mutual fund or stock. With most of these plans, you invest a certain percentage of your salary. Some companies, but not all, offer the additional benefit of matching the amount of money you invest -- anywhere from 25 percent to 100 percent. If you are offered a matching 401k, especially at 100 percent, you have hit the jackpot. Take advantage of it. What it means is that for every dollar you invest in the 401k, the company will add a dollar. If your company matches 50 percent, they will add 50 cents for every one of your dollars, and so on. This is usually capped at a certain percentage of your salary, i.e., the company will match 50 cents on the dollar up to 4 percent of your salary.
Remember, you'll never find a better deal than your 401k. Where else are you guaranteed 50 percent to 100 percent return on your investment, in addition to the return on the fund from its market performance. I suggest that, if possible, you contribute the maximum amount allowed by law. The earlier you start saving, the less you'll have to save over the long run.
Some of these financial concepts may be unfamiliar, but with all the different tax and employee benefit options, the last thing you want to do is make an uninformed decision. You can save those for when you actually start working.
