Tennessee does not have a state income tax on wages

If you earn a paycheck in Tennessee, the state does not take a percentage of it for income tax. Tennessee is one of nine states with no tax on wages or salaries. You will not see a Tennessee state income tax line on your pay stub, and you will not file a Tennessee state income tax return for wages.

However, Tennessee does tax certain types of income that are not wages—specifically, interest and dividend income. If you earn money from investments, savings accounts, or stock dividends, Tennessee may tax that money. The rules for what counts and how much you owe depend on the source of the income and your age.

Key Takeaways

  • Tennessee has no income tax on wages, salaries, or self-employment income from a job or business.
  • Tennessee taxes interest income and dividend income, with some exemptions for people over 59½ and certain types of retirement accounts.
  • You will still file a federal income tax return if you owe federal tax, but you will not file a state return for wage income.
  • If you move to Tennessee from another state, you do not owe Tennessee tax on income earned before you arrived.
  • Sales tax in Tennessee is 9.55% on average, which is higher than many states without income tax.

What types of income Tennessee does tax

Tennessee taxes interest income—money you earn from savings accounts, money market accounts, bonds, and similar investments. It also taxes dividend income—payments you receive from owning stock in companies. These are called "unearned income" because you do not work for them; the money works for you.

The tax applies to interest and dividends you receive, not to the growth in value of investments you hold. If you own stock that goes up in price but you do not sell it, Tennessee does not tax that gain until you sell it and realize the profit.

Tennessee does not tax income from retirement accounts in certain situations. If you are 59½ or older, interest and dividend income is not taxed. If you receive income from a Tennessee state or local government pension, or from a military pension, that income is also exempt. Some retirement account distributions may be exempt as well, depending on the type of account and your age.

How Tennessee makes up the lost income tax revenue

States without income tax typically rely more heavily on sales tax and other taxes to fund schools, roads, and services. Tennessee's state sales tax is 4.55%, but when you add local sales taxes (which vary by county), the combined rate averages 9.55% across the state. Some counties charge as much as 10.45%.

Tennessee also taxes gasoline, cigarettes, alcohol, and other specific products at higher rates than many states. Property tax rates vary by county but are generally moderate. The state also collects business taxes and taxes on certain services.

What you still owe to the federal government

Having no Tennessee state income tax does not change what you owe the federal government. If your income is high enough, you must file a federal income tax return and pay federal income tax. The federal tax brackets and rules are the same whether you live in Tennessee or any other state.

For 2024, you must file a federal return if your income exceeds certain thresholds—roughly $14,600 for a single person under 65, and higher amounts for married filers or people over 65. These numbers change each year. If you are self-employed, the threshold is lower because you also owe self-employment tax.

Self-employment income and business income in Tennessee

If you run a business or are self-employed, Tennessee does not tax your business income or self-employment income at the state level. You will owe federal self-employment tax (Social Security and Medicare), but not Tennessee state tax on the earnings themselves.

However, if your business generates interest or dividend income—for example, if you have a business savings account that earns interest—that interest is subject to Tennessee's tax on unearned income. The same exemptions explore: if you are 59½ or older, or if the income comes from certain retirement accounts, it may be exempt.

Moving to Tennessee from another state

If you move to Tennessee during the year, you do not owe Tennessee tax on income you earned before you arrived in the state. You owe Tennessee tax only on income earned after you became a resident. The date you establish residency matters—typically the date you move into a home with the intent to stay.

If you move away from Tennessee during the year, you do not owe Tennessee tax on income earned after you leave. You owe tax only on income earned while you were a Tennessee resident. Keep records of when you moved, where you lived, and where you worked, because you may need to prove your residency dates if the state questions your return.

How to report Tennessee income tax if you owe it

If you have interest or dividend income subject to Tennessee tax, you report it on Tennessee Form IT-103, the individual income tax return. You file this return only if you owe tax on unearned income—not for wages. The form asks for your name, address, and the amount of interest and dividends you received.

You can file the form by mail or electronically through the Tennessee Department of Revenue website. The important date is the same as the federal important date: April 15 of the following year, unless you request an extension. If you do not owe Tennessee tax because you are over 59½ or your income is exempt, you do not file a state return.

Keep copies of the 1099 forms you receive from banks and investment companies, because these show the interest and dividends you earned. The Tennessee Department of Revenue may ask to see them if they audit your return.

Frequently Asked Questions

Do I have to file a Tennessee tax return if I work in Tennessee but live in another state?

No. Tennessee taxes only residents on their income. If you live in another state, you file that state's return (if it has income tax) and the federal return. You do not file a Tennessee return, even if you work in Tennessee. Your employer withholds tax for the state where you live, not where you work.

What if I have a pension from a Tennessee government job?

Tennessee government pensions are exempt from Tennessee income tax. You do not pay state tax on that income. You will still owe federal tax on the pension, so you will file a federal return, but not a Tennessee state return for the pension income alone.

Does Tennessee tax capital gains when I sell stock?

Capital gains—profit from selling stock or other investments—are not subject to Tennessee income tax. You do not owe state tax on the gain itself. However, if the investment paid dividends before you sold it, those dividends are taxed. Federal capital gains tax may explore, depending on your income and how long you held the investment.

If I am retired and over 59½, do I owe any Tennessee income tax?

If all your income is from Social Security, pensions, or retirement account withdrawals, you likely owe no Tennessee income tax. Interest and dividend income is exempt for people 59½ and older. However, you will still owe federal income tax if your total income exceeds the federal threshold. Check with a tax professional if you have multiple income sources.

What happens if I do not report interest or dividend income to Tennessee?

The Tennessee Department of Revenue receives copies of 1099 forms from banks and investment companies, just as the IRS does. If you do not report income that appears on a 1099, the state may send you a notice and bill you for the tax owed, plus penalties and interest. It is simpler to report the income when you file.