Overview of Tennessee Taxes
In Tennessee, there is no income tax on wages. The state has a flat 6% tax rate that applies to income earned from interest and dividends. No Tennessee cities have local income taxes.
This calculator reflects the 2018 federal withholding tax changes.
Click here to learn more about how the Trump Tax Plan will affect you.
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- Our Tax Expert
Jennifer Mansfield, CPA Tax
Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice. SmartAsset’s tax expert has a degree in Accounting and Business/Management from the University of Wyoming, as well as both a Masters in Tax Laws and a Juris Doctorate from Georgetown University Law Center. Jennifer has mostly worked in public accounting firms, including Ernst & Young and Deloitte. She is passionate about helping provide people and businesses with valuable accounting and tax advice to allow them to prosper financially. Jennifer lives in Arizona and was recently named to the Greater Tucson Leadership Program.
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Tennessee Paycheck Calculator
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Tennessee Paycheck Quick Facts
How Your Tennessee Paycheck Works
As is the case in all U.S. states, you will be paying federal income and FICA taxes in Tennessee. FICA (Federal Insurance Contributions Act) taxes are Social Security and Medicare taxes. You’ll pay 6.2% and 1.45% of your income for these taxes, respectively. Your employer typically matches these percentages for a total of 12.4% received for Social Security and 2.9% for Medicare. If you earn wages in excess of $200,000, that money will be subject to a 0.9% Medicare surtax which employers do not match.
While your employer typically covers 50% of your FICA taxes, there are instances where this is not the case. If you are a self-employed worker or an independent contractor you may fall into this category. If this is the case for you, you are responsible for ensuring that 100% of your FICA taxes are paid and will likely need to cover the entirety of them yourself.
Whether you're employed by FedEx or by Vanderbilt University, federal income tax will be withheld from your paycheck each pay period. This goes to the IRS where it is counted toward your annual income taxes and funds a range of expenses.
When you start a new job, you'll typically fill out a W-4 form detailing your filing status and your allowances. If any of this information changes you'll need to fill out a new W-4 during the year. Your employer will withhold federal income taxes from your paychecks based on the information you provide. If you claim more allowances, less money will be withheld for taxes and your paycheck will be bigger. Keep in mind though, if you claim too many allowances, you run the risk of underpaying your taxes all year and owing money during tax season. If you decide to claim fewer allowances, more money will be withheld in taxes and your paycheck will be smaller. You can also opt to have an added dollar amount of your choice withheld from each paycheck.
Another thing to keep in mind is that federal income tax withholdings will change slightly in 2018. The IRS has released new withholding guidelines, to reflect President Trump's new tax plan, and you should have seen changes to their paychecks, to reflect the new tax plan, starting in February 2018. For the time being, you do not need to fill out a new W-4. Your employer will use the withholdings on your current form.
You may also want to consider how your paycheck frequency impacts your cash flow. You may get paid bi-weekly or monthly. While your checks will be larger if you get paid monthly, they will also be less frequent. It's important to be sure you are budgeting accordingly.
Tennessee Median Household Income
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There's more to celebrate about living and working in Tennessee than hiking in the Great Smoky Mountains or sharing a home with the world's country music capital. Residents of the Volunteer State sit in a favorable position with regard to state income taxes. You won't pay any state income tax on wages earned in Tennessee. You also won't have to pay any local income taxes, regardless of which city you reside in.
In 2018, there is a 3% flat tax rate on income from interest and dividends over $1,250 (this amount is doubled for joint filers). This is called the "Hall income tax" after the senator who sponsored it in 1929. However, this tax rate will decrease by 1% every year until it completely phases out by 2022.
While you won't feel a significant impact from a traditional state income tax in Tennessee, the downside is that Tennessee sales tax rates deal a tough hit to taxpayers' cash flows during the year. Tennessee residents pay the highest overall sales tax nationwide with rates averaging at 9.46% and in some areas even pushing to 9.75%. This doesn't affect your paycheck, but your wallet will likely feel it whenever you make purchases.
Overall, Tennessee has a low tax burden compared to other states, making it a relatively affordable place to live. If you’re planning on moving to the Volunteer State or if you’re thinking about refinancing a mortgage there, take look at our Tennessee mortgage guide. It has all the details about mortgage rates and information you’ll want to be familiar with before starting this process.
How You Can Affect Your Tennessee Paycheck
While you can't control all factors in your Tennessee paycheck, there are some choices that affect the checks you receive throughout the tax year.
Say for example you decide to pay for health or life insurance for you and your family through an employer-sponsored plan. Any premiums you pay for this will be subtracted from your wages.
You don't have to worry about state or local income taxes in Tennessee, but you may still be eager to reduce how much you owe in federal taxes. If you're looking to do this, one tactic that you may want to explore is putting money in tax-advantaged accounts.
You can opt to increase your contributions to a 401(k) or 403(b). Not only will you be saving for the future, but since this money is deducted from your paycheck before taxes are applied, you will actually reduce your taxable income. While your paychecks will be smaller if you decide to contribute more to a 401(k), you may save yourself some dollars in taxes.
If you have certain fixed medical expenses like copays or prescriptions, you may also want to take advantage of a Health Savings Account (HSA) or Flexible Spending Account (FSA). This helps to lower your taxable income in the same way that a 401(k) does. One important factor to keep in mind, though, is that the money you put into a HSA or FSA has an expiration date and if you don't use it before that deadline, you'll lose it.
Most Paycheck Friendly Places
SmartAsset's interactive map highlights the most paycheck friendly counties across the country. Zoom between states and the national map to see data points for each region, or look specifically at one of the four factors driving our analysis: Semi-Monthly Paycheck, Purchasing Power, Unemployment Rate, and Income Growth.
Methodology Our study aims to find the most paycheck friendly places in the country. These are places in the country with favorable economic conditions where you get to keep more of the money you make. To find these places we considered four different factors: semi-monthly paycheck, purchasing power, unemployment rate and income growth.
First, we calculated the semi-monthly paycheck for a single individual with two personal allowances. We applied relevant deductions and exemptions before calculating income tax withholding. To better compare withholding across counties we assumed a $50,000 annual income. We then indexed the paycheck amount for each county to reflect the counties with the lowest withholding burden.
We then created a purchasing power index for each county. This reflects the counties with the highest ratio of household income to cost of living. We also created an unemployment rate index that shows the counties with the lowest unemployment. For income growth, we calculated the annual growth in median income over five years for each county and indexed the results.
Finally, we calculated the weighted average of the indices to yield an overall paycheck friendliness score. We used a one half weighting for semi-monthly paycheck and a one-sixth weighting for purchasing power, unemployment rate and income growth. We indexed the final number so higher values reflect the most paycheck friendly places.
Sources: SmartAsset, government websites, US Census Bureau 2016 5-Year American Community Survey, MIT Living Wage Study, Bureau of Labor Statistics