How Much Tax Is Deducted From a Paycheck in TN?

Understanding paycheck deductions is an important part of managing personal finances. When you receive your paycheck, the gross amount earned is typically reduced by various withholdings before you receive your net pay. These deductions fund different government programs and employee benefits. This article will explain the common types of tax deductions employees in Tennessee can expect to see taken from their wages.

Federal Income Tax Withholding

Federal income tax is usually the largest deduction from an employee’s paycheck. This tax is progressive, meaning individuals with higher incomes generally pay a larger percentage of their earnings in taxes. The amount withheld from each paycheck is an estimate of your annual tax liability to the Internal Revenue Service (IRS). This system aims to ensure taxpayers consistently contribute throughout the year, rather than facing a single large tax bill.

Employers use information from your Form W-4, Employee’s Withholding Certificate, to calculate the correct amount of federal income tax to withhold. Accurately completing this form is important for avoiding under-withholding, which could lead to penalties, or over-withholding, which results in a larger refund but means less money available throughout the year.

The calculation of federal income tax withholding considers your gross pay, adjusted by any pre-tax deductions. The remaining amount is then subject to the current tax rates based on your W-4 entries. The goal of federal income tax withholding is to align the amounts paid throughout the year with your actual tax obligation.

Social Security and Medicare Taxes

Social Security and Medicare taxes, often referred to as FICA taxes, are mandatory federal payroll deductions. These taxes fund government programs providing retirement, disability, and healthcare benefits. Unlike federal income tax, FICA taxes are a fixed percentage of your gross wages.

For Social Security, the tax rate for employees is 6.2% of wages, up to an annual wage base limit. For 2025, this wage base limit is $176,100, meaning any earnings above this amount are not subject to Social Security tax. The Medicare tax rate for employees is 1.45% of all covered wages, with no wage base limit. An additional Medicare tax of 0.9% applies to wages exceeding $200,000 for an individual, and there is no employer match for this additional tax.

Both employees and employers contribute equally to these taxes. Employers also pay 6.2% for Social Security and 1.45% for Medicare on behalf of their employees. These contributions are vital for maintaining the solvency of these federal trust funds.

Tennessee’s State Tax Overview

Tennessee has a distinct tax structure regarding income earned from wages. The state does not levy a state income tax on wages or salaries. This means that employees working in Tennessee will not see any state income tax withheld directly from their paychecks.

While there is no state income tax on wages, Tennessee does have other state-level taxes. These include sales tax, which applies to goods and services, and property taxes. However, these taxes are not directly withheld from an employee’s paycheck.

Key Factors Influencing Withholding Amounts

The amount of federal income tax withheld from a paycheck is heavily influenced by the information an employee provides on their Form W-4. Key factors include the chosen filing status, such as single, married filing jointly, or head of household, which impacts the standard deduction and tax bracket thresholds. The number of dependents claimed on the W-4 also plays a significant role, as it can reduce the amount of tax withheld. Employees can also specify an additional amount of tax to be withheld if they anticipate owing more tax than standard withholding would cover.

Pre-tax deductions further reduce the amount of income subject to federal income tax withholding. These deductions are taken from an employee’s gross pay before taxes are calculated. Common examples include contributions to a 401(k) retirement plan, health insurance premiums, and Health Savings Account (HSA) contributions. By lowering an employee’s taxable income, pre-tax deductions effectively reduce the amount of federal income tax withheld, increasing net pay. This mechanism provides a tax advantage, allowing employees to save for retirement or cover healthcare costs with pre-tax dollars.