2026 · Tennessee
Tennessee severance pay tax
Federal tax takes its 22% cut, but Tennessee takes nothing. And pays up to $325 a week in unemployment. This works out what you owe.
Tennessee layoff at a glance
| State tax on severance | None, no state income tax |
| State income tax | None |
| Unemployment weekly max | $325 for up to 12 weeks |
| Unemployment taxed by Tennessee? | No |
How Tennessee withholds on severance
Tennessee has no state income tax, so none of your severance is withheld for the state, a real edge over high-tax states. On top of that, the federal government withholds a flat 22% (37% over $1 million) and FICA, 6.2% Social Security up to the $184,500 wage base plus 1.45% Medicare.
Tennessee has no state income tax at all, so neither your severance nor your unemployment faces a state levy, a group of just nine states. If you also claim unemployment, Tennessee pays up to $325 a week for up to 12 weeks, and does not tax it. That's the Tennessee layoff picture in one place, the severance tax here, the unemployment on its own Tennessee page.
Worked example: $40,000 severance in Tennessee
A single filer, $40,000 severance paid separately, with $60,000 of other 2026 income:
| Federal withholding (22%) | −$8,800 |
| FICA (Social Security + Medicare) | −$3,060 |
| Tennessee withholding | $0 |
| Net check | $28,140 |
| What it costs in tax | $11,210 |
Over-withheld by about $650, expect roughly that back as a refund at filing. The withholding is a fixed rate; your actual tax is your marginal rate on the severance stacked on your other income.
Stacking Tennessee unemployment on top
Tennessee sizes your weekly check off your recent wages, up to $325 a week, among the lowest in the country (45th of 51). There is no separate dependent add-on. Duration 12 base, indexed up to 20.
| Weekly benefit range | $55 - $325 |
| How the amount is set | Off your recent wages |
| Maximum duration | 12 weeks (12 base, indexed up to 20) |
| Waiting week | Yes, one unpaid week |
| Dependent allowance | None |
| Taxed by Tennessee | No |
Stacked together, that $40,000 severance nets about $28,140 and Tennessee's unemployment can add up to $3,900 over 12 weeks, about 8 months of a $4,000 budget before you need a paycheck. File through Tennessee Department of Labor and Workforce Development; nail down the exact figure in the runway calculator.
If your next move is freelancing in Tennessee
A layoff is how a lot of 1099 careers start, and "Tennessee has no income tax" is only most of the story for the self-employed. Tennessee draws a sharp line by entity type. A sole proprietor faces only the gross-receipts business tax, and only after $100,000 of gross receipts in a county or city (a minimal activity license covers the $3,000 to $100,000 range; the business tax itself has a $22 minimum). Form an LLC, though, even a single-member LLC, and the franchise and excise taxes apply: 0.25% of net worth with a $100 minimum, plus 6.5% of Tennessee taxable income. In Tennessee, staying unincorporated is itself a tax decision.
The Tennessee 1099 calculator runs the federal side, which applies in full no matter what the state skips.
Questions about Tennessee severance tax
Is severance taxed higher in Tennessee?
No. It's withheld at a flat 22% federally and Tennessee takes no state tax at all, but it's taxed as ordinary income at your normal rates. The worked example on this page shows the gap in dollars: on a $40,000 severance, $8,800 of federal tax is withheld up front while the severance actually costs about $11,210 in tax for that filer. Whichever direction the gap runs, it settles up at filing, a refund if too much was taken, a bill to plan for if too little.
Does Tennessee tax my severance?
No, Tennessee has no state income tax, so your severance keeps its full value at the state level (federal tax and FICA still apply).
Will I get a refund or owe more?
It depends on your bracket. The flat 22% over-withholds for lower earners (refund) and under-withholds for those in the 32 to 37% brackets (set aside the difference). The crossover sits where your marginal rate passes 22%: below it, every severance dollar was over-withheld and comes back; above it, the flat rate quietly under-collects and the difference lands on your return as a balance due. For the $40,000 example on this page with $60,000 of other income, the calculator's verdict is printed under the worked example. Enter your numbers above to see which way it goes for you.
Your Tennessee layoff toolkit
- Tennessee unemployment benefits weekly amount and duration
- Runway calculator how long your money lasts
- Tennessee paycheck calculator take-home at your next job
- Tennessee 1099 tax if you go freelance
An estimate for the 2026 tax year. State supplemental figures from the verified dataset, last verified 2026-07-24. Nothing you enter is stored. Not tax advice.