How a bonus is withheld in Tennessee
Tennessee has no tax on wages and no local income taxes, so a bonus loses only the federal lines: income tax withholding at the flat 22% supplemental rate (or under the aggregate method), Social Security at 6.2% up to the $184,500 wage base, and Medicare at 1.45%. On a $10,000 bonus the percentage method withholds $2,200, $620 and $145, leaving $7,035. The Hall tax that once applied to investment income never applied to bonuses and was repealed in 2021 in any case.
Under the aggregate method the bonus is added to a regular paycheck and federal withholding is computed on the combined amount under the normal tables; for a $60,000 earner paid every two weeks that withholds about $2,700 rather than $2,200 on a $10,000 bonus. Many Tennessee employers in the Nashville and Memphis labour markets pay bonuses on separate cheques, which is where the flat 22% is most often seen.
What the withholding means for your federal return
A single filer on $60,000 has a federal marginal rate of 12% up to $50,400 of taxable income and 22% above it, so a $10,000 bonus is really taxed at about $1,450 against $2,200 withheld, and about $750 returns as part of the refund. Tennessee residents who earn a bonus for work in Kentucky, Georgia, Virginia or another taxing neighbour are withheld for that state on it, with nothing in Tennessee to credit it against. The Tennessee paycheck calculator shows the federal marginal rate for any salary.