What Percent of Taxes Are Taken Out of a Paycheck in TN?

Understanding the various taxes withheld from a paycheck is important for Tennessee residents. While the state of Tennessee does not impose a state income tax on wages, federal taxes still represent a significant portion of paycheck deductions. Navigating these withholdings helps in comprehending your take-home pay.

Federal Withholding Taxes

Federal income tax is a primary deduction from employee paychecks, operating on a progressive tax system. The amount withheld for federal income tax depends on the information provided by an employee on their Form W-4, Employee’s Withholding Certificate, which includes their filing status, whether they have multiple jobs or a spouse with income, and any dependents or other credits they claim. Employers utilize IRS tax tables and the details from the W-4 to accurately determine the federal income tax amount to withhold from each paycheck.

Beyond federal income tax, employees also contribute to mandatory FICA taxes, which fund Social Security and Medicare. For Social Security, employees pay 6.2% of their earnings, up to an annual wage base limit of $176,100 for 2025; earnings above this limit are not subject to this tax. For Medicare, the employee contribution rate is 1.45% of all earnings, with no income limit. An additional Medicare tax of 0.9% applies to wages exceeding $200,000 for single filers. These FICA percentages are split evenly between the employee and employer, with the employee’s portion withheld directly from their paycheck.

Tennessee State Tax Landscape

Tennessee stands out as one of the few states that does not levy a state income tax on wages or salaries. This means that residents earning income from employment in Tennessee do not have state income tax withheld from their paychecks. The absence of a state income tax on wages can result in higher take-home pay for employees in Tennessee compared to residents of states with such taxes.

Tennessee previously had a tax on interest and dividend income, the Hall Income Tax, which was fully repealed as of January 1, 2021. This ensures no state-level income tax of any form on individuals in Tennessee, including on investment income. This discussion pertains to taxes withheld from paychecks and does not include other state or local taxes like sales tax or property taxes.

Factors Influencing Your Take-Home Pay

Several factors beyond federal taxes can influence an employee’s final take-home pay. Employees can adjust their Form W-4 settings to manage their federal income tax withholding throughout the year. For instance, they can change their filing status, claim or remove dependents, or request additional withholding to align with their actual tax liability. This adjustment helps manage cash flow, but does not alter the total tax owed.

Pre-tax deductions reduce an employee’s taxable income, increasing their net pay. Common examples include contributions to retirement plans like 401(k)s, health insurance premiums, Health Savings Accounts (HSAs), and Flexible Spending Accounts (FSAs). These deductions are subtracted from gross pay before federal income tax and FICA taxes are calculated, leading to a lower overall tax burden.

In contrast, post-tax deductions are withheld from an employee’s paycheck after all applicable taxes are calculated. These deductions do not reduce taxable income. Examples include contributions to Roth 401(k) plans, union dues, or certain insurance premiums. The frequency of paychecks, such as weekly, bi-weekly, or monthly, can affect the amount withheld per check, though the total annual tax liability remains consistent.