Your First Paycheck as a Pharmacist

After four long years, and maybe a year or two of residency or fellowship for some graduates, endless hours of studying into the night and early mornings before an exam, mounting college loan debt, you finally land a job. That is great news because it is primarily the reason we suffer through any rigorous schooling.  We aim to get a good job in order to get paid and make the best life for yourself and your loved ones. Some of you need income quickly as you might have kids who need clean diapers and food in their mouths. You’ll need an income to support a nice house for your spouse and children. So what happens when you receive your first paycheck? Some may gift their first paycheck to their parents to thank them. Others may put down a down payment towards a new car. Most will probably save it, and use part of it to pay your mortgage and rent. Regardless what you’ll do with your first check, be prepared that your first direct deposit into your bank account may not be what you thought it was.  This goes without saying in almost any career in America.

According to the Bureau of Labor Statistics data in 2016, the average salary of a pharmacist was $122,230. The state with the most number of pharmacists is California according to their data with an average yearly wage of $136,100. In this post, let’s focus on the paycheck of a California pharmacist, and how much they would take home after deductions to get a better understanding of our hard-earned money.  The take home pay will vary depending on the amount of deductions you have. These deductions may include the level of insurance coverage, insurance type, retirement contributions, and tax exemptions available.  For example, If we begin with an average rate of $136,100/year salary based on California’s average pharmacist wage from 2016, with the assumptions that the pharmacist has a non-working spouse and two kids, the pharmacist maximizes their 401K retirement contributions ($18,000 annually in 2016), has a standard level of health insurance for a family if we use one study as a reference ($5,277 for all family plan types), claims two exemptions (one each for marriage partners), the pharmacist would be taxed at the 28% marginal federal rate, and a 9.3% marginal state rate, plus pay FICA which subsidizes Social Security and Medicare (6.85%), and vision/dental insurance (let’s assume $1500/year for a family of four), and receiving a paycheck every 2 weeks…you can expect your paycheck to be a lot lower. Even more so if you opt to add short-term or long-term disability insurance, life insurance, and other types of optional benefit contributions the employer may offer (e.g. legal insurance).  Using various paycheck calculators available for California income taxes, $136,100 may turn into $81,138 when affected by federal/state income taxes, FICA, with two personal exemptions, and deducting the maximum allowed contribution for a retirement 401k plan in 2016 ($18,000).  When further deducting for health/dental/vision without including other optional insurances such as life and disability insurance, the $81,138 turns into $74,361.  $74,361 split into 26 paychecks per year would be around $2,860 net pay per two weeks for a family of four.  This is drastically different from a gross pay of $5,234 ($136,100 divided by 26 paychecks)… essentially a 45% reduction compared to the gross amount before deductions! Therefore, you should budget wisely as there are college loans, credit card debt, mortgage payments, childcare, sales/property taxes, food, utilities, clothes, internet, cell phones, car fuel and maintenance, and so forth to consider assuming only one person works in the household.  $2,860 is around $74,360 per year after deductions are counted for.  Remember, this example is merely a rough estimate, and may not be the actual amount since taxes and exemptions can be complicated, and insurance options and retirement contributions will vary individually.  However it is probably in the same ballpark to what a typical California pharmacist in a family of four with one working person would receive after deductions.  Every state has their own income tax rates, property tax, and sales tax, health insurance rates that will affect the net pay.  Cost of living will also affect how valuable your income is worth.  Some states have cheaper tax rates, housing, gas and food costs than others.  For example, California is known to have the highest state income tax rates, and expensive real estate, whereas Florida and Texas have no state income tax, and relatively more affordable housing compared to parts of California.  However, states may compensate for the lack of tax receipts from income taxes by raising taxes in other areas such as for sales or property tax rates.  Therefore, before you blow your paycheck on a Mercedes Benz or a big 3500-square foot house, it would be wise to establish a sound budget.

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