What Changes in Your Paycheck in Tennessee
Your paycheck in Tennessee shows no state income tax deduction—only federal taxes (income tax, Social Security, Medicare) and any pre-tax deductions you've elected. This makes take-home pay calculation simpler: for a $1 salary, your paycheck won't show the $1-$1 annual state tax deduction you'd see in states with 5%-8% income taxes However, Tennessee's high sales tax (7% state plus up to 2.75% local) means that while your paycheck looks larger, your purchasing power is reduced—a $1 paycheck after taxes might only buy $1-$1 worth of goods after sales tax, depending on where you shop. The tax burden shifts from the paycheck deduction to point-of-sale, which can surprise people expecting to keep the full amount shown on their paycheck.
Tennessee State Income Tax: $0
Tennessee has no state income tax. Your paycheck shows only federal taxes.
| Gross Salary | State Tax (Year) | Effective Rate |
|---|---|---|
| $50,000 | $0 | 0% |
| $75,000 | $0 | 0% |
| $100,000 | $0 | 0% |
| $150,000 | $0 | 0% |
Use the calculator above to see your complete take-home pay with federal taxes and deductions.
Is Tennessee Better for You?
Tennessee works well for:
Tennessee works best for high earners with low taxable spending (especially those who invest rather than spend) and retirees with investment income under the 1% Hall tax threshold. Dual-income households earning $1+ who save rather than spend see meaningful advantages—keeping $1-$1+ more annually than in states with 5%-10% income taxes Property owners benefit from lower property taxes compared to other zero-tax states like Texas.
Tennessee may not be ideal if:
Tennessee is less advantageous for lower-income residents who spend a high percentage of income on taxable goods (groceries, clothing, services). Someone earning $1 who spends $1 annually on taxable purchases may pay $1-$1 in sales tax (6%-9.75%), which could exceed what they'd pay in state income tax in progressive states with generous low-income brackets. The regressive sales tax structure means lower earners face a higher effective tax burden relative to their income than middle or high earners.
Common Mistakes People Make
Misconception: 'No state income tax means Tennessee doesn't tax my investment income.' Reality: Tennessee taxes dividends and interest at 1%, which primarily affects retirees and high-net-worth individuals with significant investment portfolios. While lower than an income tax, it's not zero for all income types.
Misconception: 'All zero-tax states are the same financially.' Reality: Tennessee's 7% base sales tax (plus local additions) creates a different financial profile than zero-tax states like Texas (property tax heavy) or Nevada (gaming/tourism revenue). Your spending patterns determine which zero-tax state structure benefits you most.
Misconception: 'I'll automatically save thousands by moving to Tennessee from a high-tax state.' Reality: The savings depend on income level and spending. High earners with low spending save significantly, but a low-earner who spends most of their income on taxable goods may pay more in sales tax than they'd pay in income tax in a progressive state with low brackets.
Key Facts That Affect Your Take-Home Pay
- Tennessee eliminated its state income tax in 2021, but continues to tax investment income at a 1% rate through the Hall income tax on dividends and interest, though this only affects high earners with significant investment portfolios.
- Unlike other zero-income-tax states like Texas (property tax heavy) or Florida (sales tax heavy), Tennessee relies primarily on a 7% state sales tax plus local sales taxes that can push combined rates to 9.75% in some areas—one of the highest sales tax burdens in the nation.
- Tennessee's sales tax applies to groceries at the full rate (unlike many states that exempt or reduce taxes on food), meaning low-income families may pay a larger percentage of their income to sales taxes than middle-income families pay in state income tax in progressive-tax states.
One Thing to Know
Many people moving to Tennessee are surprised to discover the Hall income tax still applies to dividends and interest, even though wage income tax was eliminated in 2021. This catches retirees and investors off guard—they see $1 state tax on their paycheck but receive a separate tax bill for investment income.
Important Notes
These calculations are estimates based on current tax law. Your actual take-home pay varies based on:
- Pre-tax deductions (401(k), health insurance, HSA, etc.)
- Your W-4 withholding elections
- Additional income or deductions at tax time
- Individual circumstances and tax situations
Tax rates are subject to change. Federal and state tax laws may be updated annually. This is not tax advice. For personalized help, consult a tax professional familiar with Tennessee tax laws.