How Much to Budget for Health Insurance, Taxes, etc?

am_vanquish · #1 (**permalink**) 03-24-2008, 09:24 PM

I apologize if this has been answered before, but I couldn't find it after a few searches. I'm graduating from college in May and trying to work out a budget so I don't fall into any traps.

I'm struggling to determine how much to budget for Health Insurance/ Taxes /etc and figure out the difference between my gross and take-home pay. Currently, I've taken the base pay they've given me and taken out 1/3 to get my take-home pay. This should cover taxes, SS, Medicaid, Health Insurance, etc. I'm trying to stay conservative, so is this enough? More specifically, how much do most employers hold for health insurance (expressed in either a percentage of gross pay or a $ amount)?

Thanks in advance for any help!!!

sweeps · #2 (**permalink**) 03-25-2008, 04:14 AM

1/3 could be enough, but it depends on your income, what state you live in, and how much your employer will charge you for health insurance. Health insurance premiums are all over the map. Some people pay nothing, some people pay $500 or more a month.

Spud · #3 (**permalink**) 03-25-2008, 05:59 AM

I think after 1 or 2 paychecks, you should have much better answers to your questions than any of us can give you. As sweeps said, generally a lot depends on your employer. Do you know where you will be working, and what your gross salary will be? If so, you might call the HR department and see what your company does. If you don't have a job lined up yet, you might ask working friends in your area what their paycheck deductions look like, and estimate accordingly.

Using 1/3 deduction for taxes would be a good ballpark. For health insurance, I would really imagine that it depends on your industry whether or not they take a deduction from your paycheck for your health insurance, but you could probably stick $200 in the health insurance slot for now, and adjust it later if you find out it's something different.

Don't forget to budget for your 401(k) contributions. This will also change your taxes a little bit. Good luck!

skydivingchic · #4 (**permalink**) 03-25-2008, 07:10 AM

As has been said, health insurance costs are all over the map. The best idea would be to call your future employer and get a copy of their specific plans. My PPO, dental, and eye care add up to somewhere around $60/paycheck (biweekly). I live and work in California (high state income taxes) and contribute a good chunk of income to my 401(k) plan. Currently my take home pay is a little over half of my gross pay. When I first started, my take home pay was close to 60% of my gross pay. Since then, I've racheted up my 401(k) contributions and my tax brackets have gone up as my income has increased.

noppenbd · #5 (**permalink**) 03-25-2008, 07:17 AM

My wife's employer charges between $60 and $140 per month for employee-only health care, depending on which plan you choose (PPO, HMO, etc). Dental is an additional $15 per month, and vision is $5 per month. It would amount to about 5% of her gross pay (we actually have the whole family covered, so for us it is a higher percentage).

FICA (social security) and Medicare together are generally 7.65% of gross pay, if you make under $62K a year.

Income tax will depend on your tax bracket, state, and local tax rates. I would think 20% total would be reasonable, but it will vary a lot depending on location and tax deductions.

That comes out to about 1/3, so I think you are in the ballpark for your initial budget. You should also put away at least 10% into your 401k. This will have the effect of reducing your take home pay by less than 10% due to the tax break.

Also, check out this calculator online:
PaycheckCity.com - Paycheck Calculator

am_vanquish · #6 (**permalink**) 03-26-2008, 01:24 PM

Thanks for the advice guys, especially the calculator from noppenbd. I had already looked up my tax bracket using the gross income stated in my job offer, but I was very unsure about the other misc. stuff like health, dental, Medicare, SS, etc. According to the calculator, I overshot by about $200. Thanks for the input.

Another question. Most of you guys mentioned 401(k) contributions & tax breaks. My company won't match any 401k contributions until you've been with them for 9 months. Therefore, I was planning on maxing out my IRA (very proud that I made maximum annual contributions to that on my own throughout college) and make no 401k contributions during the first 9 months. After those 9 months I would start contributing the maximum to get the employer match from the 401k on top of my IRA contributions. My reasoning was that the IRA expense ratios are lower & I don't have to worry about transferring/rolling over if I leave this employer in the next few years. Is this a good philosophy? Also, am I missing something else that should be considered?

noppenbd · #7 (**permalink**) 03-26-2008, 02:02 PM

One thing to remember with the paycheck calculator is that health care, dental, vision, and most insurance that you buy through your employer is usually exempt from Federal, FICA, State, and Local taxes.

Good for you for funding an IRA. Assuming you are in your early 20s, you should save at least 10% of your income towards retirement. The usual rules are

-fund 401k to max out employer matching
-fund IRA
-if necessary to reach percentage goal, increase 401k percentage

Since your matching is not starting for 9 months, your plan sounds good.

Also look at your projected tax bracket. If you are single you can have taxable income up to $32550 and still be in the 15% tax bracket. You may want to consider a traditional IRA for this year if funding it would keep you in the 15% bracket, since you won't be making any 401k contributions this year. If you are not close to the cutoff you probably should do a Roth IRA.