Tennessee does not have a state income tax on wages or salaries

Tennessee is one of nine states with no tax on the money you earn from a job. You will not owe Tennessee state income tax on wages, salaries, tips, or self-employment income. This applies whether you live in Tennessee year-round or moved there during the tax year.

Tennessee does tax certain types of investment income — specifically dividends and interest — but only if you were born before January 1, 1926. This tax, called the Hall Income Tax, applies to very few people and is being phased out. If you were born in 1926 or later, you owe no tax on dividends or interest in Tennessee.

You will still owe federal income tax to the IRS. Tennessee's lack of a state income tax does not change what you report to the federal government or what you pay in federal withholding.

Key Takeaways

  • Tennessee has no state income tax on wages, salaries, or self-employment income, regardless of how much you earn.
  • The Hall Income Tax on dividends and interest applies only to people born before January 1, 1926, and is being phased out.
  • You still owe federal income tax and must file a federal return if your income meets IRS thresholds.
  • Tennessee funds state services through sales tax, property tax, and other revenue sources instead of income tax.

How Tennessee funds state services without income tax

Tennessee relies on sales tax and property tax to fund schools, roads, and other state services. The state sales tax is 7 percent, though some cities and counties add local sales taxes on top of that. The combined rate varies by location — it can range from 7 percent to over 9.5 percent depending on where you shop.

Property owners pay property tax based on the assessed value of their home or land. The rate varies by county. Tennessee also collects taxes on gasoline, alcohol, and tobacco, and charges licensing and registration fees for vehicles and businesses.

Because Tennessee has no income tax, the state depends more heavily on these other revenue sources than states that tax wages do. This means the overall tax burden can look different depending on whether you earn a high income, own property, or spend a lot on taxable goods.

What happens if you move to Tennessee from another state

If you move to Tennessee during the tax year, you stop owing state income tax to your previous state once you establish Tennessee residency. Most states consider you a resident once you move there with the intent to stay, though the exact rules vary. You will owe income tax to your former state only for the portion of the year you lived there.

You do not need to file a Tennessee state income tax return at all — there is no form to submit and no deadline. You will still file your federal return as usual. If your former state requires you to file a part-year resident return, you will do that with that state, not with Tennessee.

Keep records of when you moved, where you lived, and proof of your new residence (a lease, utility bill, or driver's license with your new address). If your former state questions your residency status, these documents help show when you left.

The Hall Income Tax and who still pays it

Tennessee's Hall Income Tax applies only to dividends and interest income, and only for people born before January 1, 1926. This means almost no one pays it anymore — anyone born in 1926 or later owes no tax on investment income in Tennessee.

The state is phasing out the Hall Income Tax entirely. It no longer applies to any new residents, and the tax rate has been reduced for those still subject to it. By 2022, the tax rate dropped to 1 percent, and the state has signaled further reductions are coming.

If you are unsure whether you owe this tax, check your birth date against January 1, 1926. If you were born on or after that date, you do not owe Tennessee tax on dividends or interest, even if you have significant investment income.

Self-employment income and business owners in Tennessee

If you are self-employed or own a business in Tennessee, you owe no state income tax on your business income or net profit. You still owe federal self-employment tax and federal income tax on your business earnings, but Tennessee takes no share.

You will still need to register your business with the Tennessee Secretary of State and pay any required business licensing fees. Some cities and counties charge local business taxes or licensing fees, so check with your city or county government. These are not income taxes — they are flat fees or taxes based on gross receipts, not profit.

Keep records of your business income and expenses for federal tax purposes. The IRS requires self-employed people to file Schedule C and pay self-employment tax regardless of where they live. Tennessee's lack of income tax does not change your federal obligations.

How to file taxes as a Tennessee resident

You do not file a Tennessee state income tax return. There is no state form to complete, no deadline to meet, and no payment to send to Tennessee. You simply file your federal return with the IRS as you normally would.

If you earned income in another state during the year — for example, you worked in Kentucky for part of the year — you may owe tax to that state. You would file a part-year resident return with that state for the months you lived there. Tennessee will not ask you to file anything.

If you have questions about whether you owe tax to another state, contact that state's department of revenue. The IRS website also has information about residency rules and which state you owe tax to when you move.

Frequently Asked Questions

Do I have to file a Tennessee tax return if I live there?

No. Tennessee has no state income tax, so there is no state return to file. You file only your federal return with the IRS if your income meets federal thresholds. You do not submit anything to Tennessee.

If I work in Tennessee but live in another state, do I owe Tennessee tax?

No. Tennessee has no income tax, so it does not tax wages regardless of where you live. You owe income tax to the state where you live. Your employer in Tennessee will not withhold Tennessee state tax from your paycheck.

Does Tennessee tax retirement income or Social Security?

No. Tennessee has no state income tax on any wages or retirement income, including pensions, 401(k) withdrawals, or IRA distributions. Social Security benefits are also not taxed by Tennessee. You may still owe federal tax on some retirement income depending on your total income.

What if I inherit money or receive a large gift in Tennessee?

Tennessee has no inheritance tax or gift tax. You do not owe Tennessee tax on money you inherit or receive as a gift. The federal government may tax very large estates, but that is separate from Tennessee state tax.

Are there any deductions or credits I can claim on a Tennessee return?

There is no Tennessee state return to file, so there are no state deductions or credits to claim. You claim deductions and credits only on your federal return with the IRS. Some federal credits may reduce your federal tax bill even if you live in Tennessee.