Your First Pay Stub, Explained

Your first paycheck is smaller than you expected. Nothing is wrong — here is where every missing dollar went, line by line.

How Do I Read a Pay Stub?

Every pay stub tells the same story in four acts. Gross pay is hours times wage — the big number you calculated in your head. Pre-tax deductions (rare at a first job) come out next. Taxes take their bite. What survives is net pay — the amount that actually hits your account, usually 85–92% of gross for a typical teen job.

What Are FICA, Federal, and State Withholding?

FICA: what the letters mean

FICA stands for the Federal Insurance Contributions Act, the 1935 law that set up payroll deductions for Social Security and, later, Medicare. It is not a tax on you specifically — it is the line that funds both programs, and it is the reason the two deductions above are often printed together as one 7.65% number.

Here is the part almost nobody explains to a first-time worker: you are not paying the whole bill. Your employer pays a matching 7.65% on your wages that never appears on your stub. So 15.3% of what you earn is going into these two programs; half of it is invisible. That number matters later — when you work for yourself, as covered in Side Income, you owe both halves.

What Social Security and Medicare actually are

Social Security is national insurance against outliving your ability to work. It pays a monthly income in retirement, and — the part teens never hear — it also pays if you become disabled and cannot work, and it pays your family if you die young. It is not a savings account with your name on it: today’s workers fund today’s retirees, and one day someone else’s payroll deduction will fund yours.

Medicare is national health insurance for people 65 and older, plus younger people with long-term disabilities. Your 1.45% is buying into a system you cannot use for roughly fifty years — which is exactly why it feels like a strange thing to pay for at sixteen.

The 7.65% FICA combo comes out of every paycheck no matter how little you earn — there’s no getting it back at tax time, and now you know what you are buying with it. Federal income tax is different: most teens earning under the standard deduction ($16,100 for 2026) owe zero federal income tax for the year[1] — so if federal tax is being withheld, you’re making an interest-free loan to the IRS until you file a return and claim it back.

State tax: three different systems

The state line on your stub depends entirely on where you live, and states do not agree with each other at all. There are three arrangements:

• No state income tax. Nine states — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming — take nothing out of your paycheck. They raise money through sales tax, property tax, or business taxes instead, so “no income tax” does not mean “no taxes.”
• Flat tax. Around a dozen states apply one rate to everyone — Illinois, Pennsylvania, Colorado, and Michigan among them. Whether you make $5,000 or $500,000, the percentage is identical.
• Progressive (graduated) tax. Most of the rest use brackets that rise with income, the same way federal tax works. Your first dollars are taxed at the lowest rate, and only the dollars above each threshold get the higher rate. At a teen’s income you are almost entirely in the bottom bracket — and many states exempt low earners completely.

Two things follow from that. First, a job offer in one state is not the same money as the identical offer in another. Second, some cities add their own local income tax on top — New York City and several Ohio and Pennsylvania municipalities do. Rates and rules change often, so look up your own state’s department of revenue rather than trusting a number you read once.[4]

What Should I Do With My Pay?

Before spending a dollar, run the split: some for spending, some to savings, and — the biggest move available to a working teen — up to everything you earned into a custodial Roth IRA, where a teen’s near-zero tax rate plus fifty years of compounding does absurd things. A workable target is 20% of your after-tax pay into retirement, starting with this paycheck. The amount matters far less than the habit; someone who starts at sixteen and never stops has already won the part of this that cannot be bought back later.

Then fund the savings goal — the specific thing you actually want — and spend what is left deliberately. The one habit worth building on day one is writing down where the money went. Not a budget yet, just a record. It costs a few seconds per purchase and it is the only reliable way to find out what you actually value versus what you bought because it was in front of you. The habit itself is the subject of Learning to Budget, the Roth mechanics are in W-4, Side-Income and Taxes for Teens, and the whole sequence lives in the Before-18 Checklist.