Getting Your First Job

Now that you've entered the workforce, you'll enjoy getting steady paychecks and so will your partner: Uncle Sam.

Becoming a wage earner also means becoming a taxpayer. You'll owe federal income taxes at rates that range between 0 percent (on up to $8,700 of taxable income in 2012 if you're single) to 35 percent (for amounts over $388,350).

In addition, Social Security and Medicare taxes will claim 5.65 percent of your first $110,100 of salary in 2012. The 1.45 percent portion of the tax that pays for Medicare continues no matter how high your wages. You will also pay state income taxes, how much depends on where you live. But paying taxes isn’t just a one-way street. There are also ways starting a new job can also help you save on taxes.

Unfortunately, you can't deduct the cost of looking for your first job. When you change jobs, though, expenses such as the cost of printing resumes and traveling to job interviews is deductible, as long as you're looking for a job in the same line of work.

Such costs are "miscellaneous expenses," which means they are deductible, if you itemize, to the extent they exceed 2 percent of your Adjusted Gross Income (AGI).

You can deduct the cost of job-related moving expenses even if it's for your first job and even if you claim the standard deduction rather than itemizing. The key is that your new job must be at least 50 miles away from your former home.

In addition to the cost of moving your household goods, if you drive your own car you can write off 19 cents per mile if you moved in 2012.

This is something most workers—whether on their first job or 20th—fail to do. We know that because about 100 million taxpayers get tax refunds every year, proof positive they had too much withheld from their pay.

When you start a job, you'll be asked to fill out a Form W-4. That little piece of paper controls how much federal income tax will be taken out of each check to pay taxes. The amount is based on your salary and the number of "allowances" you claim on the W-4. Take the time to read the instructions carefully to be sure you claim as many allowances as possible. That will keep withholding down to the legal minimum.

If you're starting a job in mid-year (as college grads often do), consider asking your boss to use the "part-year method" for figuring withholding for the rest of the year. This method basically sets withholding based on how much you'll actually earn rather than on 12 times your monthly salary. That can put more money in your paycheck when you're starting out (when you can probably really use the dough).

If your company offers a 401(k) retirement savings plan, don't hesitate to join. And don’t be surprised if your company automatically enrolls you. More and more employers are doing it in an effort to get American workers to save for retirement from their first day on the job.

Many firms match part of an employee's contributions, typically 50 cents on the dollar for the first 6 percent of pay, although these days some companies are contributing less due to the recession. Contribute at least enough to capture the full company match; otherwise, you're leaving free money on the table. If you join a traditional 401(k), pre-tax salary goes into the plan. If you're in the 25 percent tax bracket, that means your take home pay will drop by just $750 for each $1,000 you contribute to the plan. If your firm matches 50 percent, that means you'll have $1,500 in the plan for an out-of-pocket cost of just $750. Where else can you get a guaranteed 100 percent return on your investment?

If your company offers the Roth 401(k), you may be better off choosing this option. With the Roth 401 (k), after-tax money goes into the plan, so a $1,000 contribution really costs $1,000. The advantage? As with a Roth IRA, all withdrawals from the Roth 401(k) can be tax-free in retirement, while payouts from the traditional 401(k) are fully-taxable. You’ll benefit from decades of tax-free growth and tax-free withdrawals.

Depending on your income, contributions to a 401(k) might earn you a special tax credit as well. You can qualify for this credit on your 2012 return if your income is under $28,750 if you're single, or under $57,500 if you file jointly with your spouse. The retirement saver's credit is worth up to $1,000 for qualifying taxpayers (up to $2,000 if filing jointly) based on claiming a 10% to 50% credit on up to $2,000 that you put in a retirement plan. The credit, which reduces your tax bill dollar-for-dollar, is in addition to other tax savings that may apply to retirement plan contributions.

Be aggressive if your employer offers a medical reimbursement account—sometimes called a flexible spending account or FSA. These plans let you divert part of your salary to an account which you then tap to pay medical bills.

The advantage? You avoid both income and Social Security tax on money you contribute to the account. Paying medical bills with pre-tax money can save you 20 percent to 35 percent or more compared with spending after-tax money.

If you're paying for child care while you work, also take advantage of a child care reimbursement account if your company offers one. It works the same way as the medical plan, allowing you to use up to $5,000 of tax-free money to pay for child care. If you're in the 25 percent bracket, to have $5,000 left after taxes you'd have to earn more than $7,400.

Fringe benefits often deliver double benefits. Not only does your employer foot all or part of the cost, but the value of most of these benefits comes to you tax-free. Even when the value is included in your taxable income, you come out ahead. If you're in the 25 percent bracket, for example, paying tax on the value of a $1,000 fringe benefit costs you just $250, while you'd have to earn $1,333 in order to have $1,000 left to pay for the item if you bought it with after-tax dollars.

Among the tax-free fringes you may be offered:

• Pre-tax contributions for medical insurance premiums
• Group term life insurance
• Free parking, up to $240 in 2012
• Transit passes, up to $125 a month in 2012
• Employees who commute by bicycle are eligible for $20 a month in employer-provided fringe benefits tax-free
• Company car—the value of business use can be tax-free; the value of personal use is taxable
• Employee discounts on your company's goods and services
• Adoption benefits

The chance to buy company stock at a discount can be a great benefit. But the tax rules are extremely complex and different rules apply to different kinds of options. For Incentive Stock Options (ISOs), for example, no tax is due under the regular tax rules in the year you exercise the options to buy stock.

But if you're hit by the Alternative Minimum Tax (and exercising ISOs might make you a candidate), tax is due on the difference between what you pay for the stock and its value at the time you acquire it. No tax is due when you are granted nonqualified stock options, but when you exercise the options to buy stock, you are taxed under the regular tax rules on the difference between the purchase price and the stock's value. If options are part of your employment package, make sure you understand the tax ins-and-outs so you get the most out of what's offered.

HSAs are a relatively new form of medical plan that is being offered by more and more employers. They combine a high, out-of-pocket deductible insurance plan with a tax-free savings account. If you choose such a plan, your employer can make tax-free deposits to your HSA account and you can withdraw money tax-free to pay your unreimbursed medical bills.

TurboTax makes it easy to understand your taxes and tax situation when you get your first job.