Starting Your First Job? Here’s the Paperwork You'll Need to Fill Out
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The internet is rife with advice about smiling at your colleagues on your first day of work and making good eye contact with your boss. But hardly anyone tells you about the small mountain of paperwork you need to fill out when you start your first job.
Though mind-numbingly boring, these forms will dictate how much money you'll take home each month, how you'll be covered for that doctor's visit this November, and whether you'll live in a shoebox or a five-bedroom house in retirement.
Here are five forms and elections you'll face during your first days on the job and what you should consider as you complete them.
Your employment contract
The first piece of paper you'll need to sign—possibly before you even enter the office—is your employment contract. Your contract will state what's expected of you in your position, the salary and benefits you're entitled to, and certain legal liabilities to which you need to commit, such as confidentiality agreements.
Since you're still green behind the ears, there may not be much you can do to change the terms of your contract or negotiate your salary. However, you should still carefully review the terms of your employment.
- Salary:Verify that the salary listed is the same as—or at least not less than—what was verbally agreed upon when you were offered the job. If you're going to be paid by the hour, review whether you're subject to a maximum number of hours each week and if you qualify for overtime pay.
- Employment term:Is this a three-month contract or an open-ended, full-time job? Your contract should specify the minimum amount of time you should expect to be employed, if there is a limit.
- Benefits:If you qualify for benefits, such as health insurance or a company-sponsored retirement plan, these should be declared in your contract. If you thought were receiving benefits not listed in the contract, ask your Human Resources representative for clarification.
- Noncompete clause:Many contracts include a noncompete clause, which specifies that you're not allowed to work for industry competitors for a certain amount of time after you terminate your employment. It's useful to keep this information in the back of your mind as you map out your career.
As a fresh employee just entering the workforce, it can be exciting to see your annual salary written down on paper. So many digits! Student loans, beware! Unfortunately, there's a big difference between your gross pay—or your salary—and your net pay—what you take home after taxes.
Most people don't enjoy paying taxes, but if you drive to work on a paved road, you're benefiting from them. Your Form W-4 is the document your employer will use to determine how much money they should withhold from each paycheck for taxes.
It's hard to determine exactly how much you'll need to withhold during your first job, especially if it's in a new city or state with unfamiliar tax laws. Carefully follow the instructions included with your W-4 to determine the number of allowances—or tax exemptions—you should declare. If you claim too many allowances, your employer won't withhold enough money and you'll end up with a big tax bill next April. If you claim too few allowances, your employer will withhold too much and you’ll have a smaller paycheck—but a big tax refund.
Your goal should be to owe no money to Uncle Sam after you file your taxes and to have no money owed to you. People love to get a big refund each year, but that isn't something you should aim for. Getting a tax refund may seem like free money, but it's not; it's your money, and what it actually means is that you've just given the government a free loan over the past 12 months when you could have invested that money instead.
Come tax time, reassess your withholdings and adjust them so your next tax return will be closer to zero.
Health insurance elections
Few things induct you into the world of confusing adult responsibilities quite like health insurance. Generally, health insurance companies do not make their policies easy to understand, so don't be afraid to ask your insurance representative or HR manager questions about your health insurance elections.
But before you do, it's important to understand a few basic insurance terms.
- Premiums:Your health insurance premiums are the basic rates you'll pay each month just to carry your policy. Fortunately, these premiums are deducted before taxes are considered, reducing the amount you owe the state and government.
- Deductibles:This is the amount you're required to pay each year before your insurance policy kicks in. Policy premiums do not count toward your deductible. A lower deductible will come with higher premiums, while a higher deductible will come with lower premiums. The plan that will cost you less in the long run entirely depends on your insurance claims over the coming year. If you have ongoing health issues that require regular therapy or prescriptions, a low-deductible plan could be less expensive. If you're in great health and don't expect to file any claims over the coming year, a high-deductible plan may be right for you.
- Co-pay:This is a flat amount you must pay each time you visit the doctor or dentist, and it doesn't count toward your deductible. Co-pays allow you to share medical costs with your insurer to keep rates down.
- Coinsurance:This is similar to a co-pay, except it's calculated as a percentage of your overall medical costs, rather than a flat rate. Your policy may have one, both or neither of these features.
- Out-of-pocket maximum:This is the maximum amount you could pay between your deductible and co-pay or coinsurance before your insurance company pays for all remaining expenses that year.
- In/out-of-network:Certain medical or dental plans offer reduced rates for preapproved, in-network physicians. Typically you can find a list of in-network providers on your insurance company's website. If you have family doctors you typically visit, you should verify that they're in your network before visiting them under your new policy. If you visit an out-of-network physician, your claim might still be partially covered, but it will likely cost you more than an in-network provider.
If your employer offers multiple vision, dental and medical plans, you'll need to consider your personal needs to elect adequate coverage. There's no wrong answer, and it can be hard to predict the best choice. Electing an upper-tier policy that costs more than you can afford does little to improve your financial situation. Skimping on coverage could end up costing you more if you have a medical emergency over the coming year.
Do your best to choose coverage that corresponds with your medical history and projected needs. Once you make an election, you probably won't be able to change it until your company's annual re-enrollment period.
FSAs and HSAs
Your employer may offer a flexible spending account (FSA) or health savings account (HSA) as part of its insurance package. These funds allow you to allocate pretax dollars for qualified medical expenses. If you expect to spend a minimum amount on medical expenses over the coming year, an FSA or HSA could be a great way to save 20% to 40% of that amount, depending on your ultimate tax liability.
Although they serve a similar purpose, each fund is subject to different rules. For example, FSAs are available to anyone, and in 2018, you can contribute up to $2,650 to the account. However, any unused funds will be lost when the plan year expires, so you'll need to estimate how much you're likely to spend before allocating money.
On the other hand, HSAs are only available to people who are enrolled in a high-deductible health plan. Additionally, any unused funds deposited in an HSA will roll over each year, and if you carry those funds until you're 65, you can withdraw them tax-free for nonmedical purposes. In 2018, the individual annual contribution limit for HSAs is $3,450.
Typically, you'll get a debit card to use to spend your FSA or HSA savings. It can be used at doctor's offices, pharmacies, grocery stores and online, as long as the items or services you're buying are qualifying medical expenses.
Can you stay on your parents’ plan?
Under the Affordable Care Act, young adults can stay on their parents’ health insurance plans until they turn 26. Staying on your parents' plan may reduce costs for you, but it will make their policy more expensive. You'll have to discuss with them whether they'd like you to remain under their insurance, and how you'll compensate them for that coverage.
Additionally, you should compare your parents' plan with the plan offered by your employer. If your employer's plan offers more comprehensive coverage, you may want to switch insurers.
Commuter benefits are a lot like an FSA, except these pretax dollars can be used for qualifying commuter expenses, such as parking fees, a monthly metro pass, or tickets for your regular bus, train or ferry.
If your employer offers commuter benefits, and you take some form of public transportation to work each day or pay to park your car, you should definitely take advantage of this benefit. It's easy to calculate how much you spend commuting each month, and by allocating this amount, you'll avoid paying some taxes.
If you're in the first months of your career, hopefully you're not already counting down the days to retirement. However, that doesn't mean that you shouldn't keep retirement savings in the back of your mind.
Regardless of age, everyone should try to put 10% to 15% of their annual salaries into tax-advantaged retirement accounts in order to have enough saved for retirement. Your company may offer some form of retirement program, such as a 401(k), to help you stash those savings.
Two of the elections you may have to make related to your retirement plan are the specific funds your retirement money goes into and whether those deposits are made on a traditional (pretax) or Roth (post-tax) basis. Representatives from your company's plan administrator should be able to help you decide where to put your funds—most likely into a single target-date fund built for people your age.
As for whether you should choose traditional or Roth contributions, that will depend on your current tax bracket and the tax bracket you expect to be in during retirement.
Since you're at the very beginning of your career, there's a good chance you're in a lower tax bracket now than you'll be in 15 years. Because of this, it might not hurt to make post-tax Roth contributions to your retirement account now, while your income is taxed at a lower rate. Later in your career, if you're earning enough to be bumped into a higher tax bracket, you can consider changing to traditional contributions. That way, those funds won't be taxed until you withdraw them in retirement—when you're earning less and taxed at a lower rate again.
Even if you can't afford to put away 10% of your income for retirement now, make sure to find out if your company provides a 401(k) match for a certain percentage of your salary. For example, your employer may match your retirement contributions dollar-for-dollar up to 5% of your salary. This would essentially give you a 5% raise, and it helps you get closer to that target savings amount. At the very least, contribute enough to take full advantage of your employer match.
The article, Starting Your First Job? Here's the Paperwork You'll Need to Fill Out, originally appeared on ValuePenguin.