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The Whys of Taxes

Theme 6: Understanding the IRSLesson 2: Your First Job

 

Illustration of a sheet of notebook paper and a sharpened pencil.
When you have an earned income, it is your responsibility to pay taxes. Federal income tax is most often collected on a pay-as-you-go basis. Employees usually have taxes taken out of, or withheld from, each paycheck that is subject to tax. Some people are exempt from tax withholding.

When you start a new job, your employer will ask you to provide information on Form W-4. This will help your employer determine how much money to withhold from your wages. It is important to fill out your form accurately and completely.

After you enter the workforce, it is essential to keep accurate financial records. Two basic systems for recordkeeping are on paper and on a computer.

Paper Computer
Advantages: affordability, simplicity, portable Advantages: quick and easy access to an online checkbook, an all-in-one file for earnings and expenses, easy updating
Disadvantages: may not be as accurate Disadvantages: expense of a computer and software, added step of inputting information

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Why does an employer need a Form W-4 from each employee?


tax trivia
Did You Know?
Photo of Hilda Whitcher. Photo credit Social Security Administration. The most misused Social Security number of all time was 078-05-1120. In 1938, as part of a promotion to sell wallets through Woolworth and other department stores, wallet manufacturer E. H. Ferree Company wanted to demonstrate how a Social Security card would fit into its wallets. A sample card was placed inside each wallet and displayed the Social Security number of the company's secretary, Mrs. Hilda Schrader Whitcher. Even though the sample card was half of the size of an actual Social Security card, was written in red, and had Specimen written in bold, many people confusedly used this as their own Social Security number. In 1943, 5,755 people were using Hilda's number.

Test your tax trivia knowledge by answering the following multiple-choice question. To assess your answer, click the Check My Answers button.
In all, about how many people do you think reported 078-05-1120 as their Social Security number?
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