How Much Tax Does Tennessee Take Out of Your Paycheck?

When you receive a paycheck, various deductions are taken from your gross earnings before you see your net pay. Tennessee does not levy an income tax on wages, so no state income tax is withheld from your paycheck. This article explains the taxes commonly deducted from paychecks, focusing on the specifics relevant to Tennessee employees.

Federal Income Tax Withholding

Federal income tax withholding is a deduction from most paychecks. It represents an estimated portion of an individual’s annual tax liability to the U.S. government. Employers use information from an employee’s Form W-4 to calculate the amount to withhold. This form allows employees to specify their filing status, account for multiple jobs, claim dependents, and note other income, deductions, or credits that influence their tax situation.

The federal income tax system operates on a progressive scale, taxing different portions of income at increasing rates. Your filing status, such as single, married filing jointly, or head of household, along with claimed deductions and credits, directly impacts how much federal income tax is withheld. Adjusting your Form W-4 can help align the amount withheld with your actual tax liability, potentially preventing a large tax bill or a substantial refund.

FICA Taxes

FICA, or the Federal Insurance Contributions Act, taxes fund Social Security and Medicare. These mandatory payroll taxes are split between the employee and the employer, with the employee’s portion directly deducted from their paycheck. For 2025, the Social Security tax rate is 6.2% for both the employee and employer, applied to earnings up to an annual wage base limit.

The Social Security wage base limit for 2025 is $176,100; earnings above this amount are not subject to Social Security tax. The Medicare tax rate for 2025 is 1.45% for both employees and employers, with no wage base limit, so all covered wages are subject to this tax. An Additional Medicare Tax of 0.9% applies to individual wages exceeding $200,000 in a calendar year, and employers must withhold this additional tax.

Tennessee State Income Tax

Tennessee does not impose a state income tax on wages or salaries. This means no state income tax is withheld from an employee’s paycheck in Tennessee. This absence of state income tax withholding can result in a higher take-home pay for residents compared to states with a state income tax.

While Tennessee does not tax wages, it generates revenue through other means, such as sales and property taxes. These taxes are not deducted from an employee’s paycheck. For example, Tennessee has a statewide base sales tax rate of 7%, with local governments able to add up to 2.75%, potentially reaching a combined rate of 9.75% in some areas.

Local Payroll Taxes in Tennessee

Employees in Tennessee do not have local income or payroll taxes withheld from their paychecks. The state’s tax structure focuses on other forms of taxation, rather than local earnings-based deductions. This contributes to a simplified payroll deduction landscape for most workers in Tennessee.

Employers in Tennessee are required to pay state unemployment insurance (SUI) taxes. These are employer-paid taxes and are not deducted from an employee’s wages. New employers in Tennessee pay a flat SUI rate, with the tax applied to a specific wage base.