Tennessee has no state income tax on wages or salaries

Tennessee does not tax the wages you earn from a job. There is no state income tax on salaries, hourly pay, or self-employment income in Tennessee. This applies whether you live in Tennessee full-time, work there part-time, or are just passing through — if you earn money in Tennessee, the state does not take a cut.

This has been true since 1891 and remains one of Tennessee's defining tax features. It means your paycheck stays larger than it would in states with income tax, and you do not file a state income tax return to report wages.

Key Takeaways

  • Tennessee has no state income tax on wages, salaries, or self-employment income from any source.
  • Tennessee does tax certain types of investment income, including interest and dividends, though this tax is being phased out.
  • You may still owe federal income tax to the IRS even though Tennessee collects nothing.
  • Tennessee funds state services through sales tax, property tax, and other taxes instead of income tax.
  • If you move to Tennessee from a state with income tax, you will not owe Tennessee income tax on past earnings from other states.

What types of income Tennessee does tax

While Tennessee does not tax wages, it does tax certain investment income. Tennessee taxes interest income and dividend income — money you earn from savings accounts, bonds, stocks, and similar investments. This tax applies to Tennessee residents on income from any source, including investments held outside the state.

However, Tennessee is phasing out this tax. The state began reducing the tax rate on investment income in 2021 and plans to eliminate it entirely by 2032. The rate has dropped each year, and fewer residents pay it as the threshold for what counts as taxable income rises. If you receive investment income, check the current year's rate with the Tennessee Department of Revenue, because the amount you owe changes annually during this phase-out period.

Federal income tax still applies in Tennessee

Tennessee's lack of state income tax does not affect what you owe to the federal government. You must still file a federal income tax return with the IRS and pay federal income tax on your earnings, just as residents of every other state do. The IRS collects federal tax regardless of whether your state collects its own income tax.

When you file your federal return, you report your total income and calculate what you owe based on federal tax brackets and rules. Tennessee residents follow the same federal process as everyone else — the state straightforward does not add another layer of taxation on top.

How Tennessee funds state services without income tax

Tennessee replaces income tax revenue with other sources. The state relies heavily on sales tax, which is one of the highest in the nation. Tennessee's combined state and local sales tax rate varies by county but typically ranges from 8.5% to 9.55%. This means you pay tax on most purchases you make in the state.

Tennessee also collects property tax on real estate, though rates vary by county and are generally considered moderate compared to other states. The state also funds services through excise taxes on gasoline, alcohol, and tobacco, as well as business taxes and licensing fees. This combination of taxes replaces the revenue that income tax would generate.

What happens if you move to Tennessee from another state

If you move to Tennessee from a state with income tax, you do not owe Tennessee income tax on money you earned before moving. Your previous state may still tax income you earned while living there, but Tennessee has no claim on past earnings. Once you establish residency in Tennessee, only Tennessee's tax rules explore to future income — and since Tennessee has no income tax, you will not owe state income tax on wages going forward.

You may still owe taxes to your previous state if you earned income there during the year you moved. Contact that state's tax authority or a tax professional to determine what you owe for the portion of the year you lived there. Tennessee itself will not pursue you for income tax on any earnings.

Remote work and income earned outside Tennessee

If you live in Tennessee but work remotely for a company in another state, Tennessee does not tax your wages. You earn income in Tennessee (where you live and work), so Tennessee's lack of income tax applies. You will owe federal income tax, and you may owe income tax to the state where your employer is located — that depends on that state's rules, not Tennessee's.

If you are self-employed and serve clients across multiple states, Tennessee does not tax your business income. However, you may owe income tax to states where your clients are located or where you conduct business, depending on those states' rules. Consult a tax professional if your business spans multiple states, because the rules vary significantly.

Frequently Asked Questions

Do I have to file a Tennessee state income tax return?

No. Since Tennessee does not tax wages, most residents do not file a state income tax return. If you have investment income subject to Tennessee's tax, you may need to file, but the threshold is high and the tax is being phased out. Check the Tennessee Department of Revenue website for the current year's filing requirements.

What is Tennessee's sales tax rate?

Tennessee's state sales tax is 7%, but most counties add a local sales tax on top. The combined rate typically ranges from 8.5% to 9.55% depending on which county you are in. Some items, like groceries, are taxed at a lower rate or not at all.

If I retire in Tennessee, do I pay income tax on my pension or Social Security?

No. Tennessee does not tax income from any source, including pensions, retirement account withdrawals, or Social Security benefits. However, you may owe federal income tax on these sources depending on your total income and the type of retirement income.

Does Tennessee tax capital gains?

Tennessee does not have a separate capital gains tax. Capital gains are treated as investment income and subject to the same tax that applies to interest and dividends, which is being phased out by 2032.

Can I deduct Tennessee taxes on my federal return?

Since Tennessee has no income tax, there is nothing to deduct. You can deduct other state and local taxes (sales tax, property tax) up to $10,000 per year on your federal return if you itemize deductions, but Tennessee income tax is not among them.