Tennessee does not have a state income tax on wages

Tennessee is one of nine states with no tax on wages or salaries. If you work in Tennessee or live there and earn a paycheck, the state does not take a percentage of your income. You will still owe federal income tax, and your employer will still withhold that, but Tennessee itself collects nothing from your wages.

This applies to W-2 employees, self-employed people, and anyone else whose income comes from work. The state has not taxed wages since 2021, when it phased out its tax on investment income (dividends and interest). Before that year, Tennessee taxed only investment income, not wages — an unusual arrangement that ended when the state legislature voted to eliminate the tax entirely.

The absence of a state income tax does not mean Tennessee has no taxes. The state funds itself through other revenue sources, and you will encounter them depending on what you buy and where you live.

Key Takeaways

  • Tennessee collects no state income tax on wages, salaries, or self-employment income from work.
  • You still owe federal income tax, which your employer withholds from your paycheck.
  • Tennessee funds state services through sales tax, property tax, and other levies instead.
  • If you moved to Tennessee from a state with income tax, your federal withholding does not change — only state withholding stops.

What Tennessee taxes instead of income

Tennessee makes up the revenue through a sales tax that applies to most goods you buy in stores. The state sales tax rate is 9.55 percent, though the exact amount you pay depends on local taxes added by your county or city. Some counties add 2 to 2.75 percent on top of the state rate, so the total can range from 9.55 to over 10 percent depending on where you shop.

The state also collects property tax on real estate. This is a local tax set by your county, not a statewide rate — it varies significantly by location. If you own a home or rent in Tennessee, property tax affects your housing costs either directly (if you own) or indirectly (if your landlord factors it into rent).

Tennessee also taxes certain specific items: gasoline, cigarettes, alcohol, and utilities. These are excise taxes — taxes on particular goods rather than income or general purchases. The gas tax is currently 27.4 cents per gallon, and cigarette tax is 62 cents per pack, though these rates can change when the legislature votes.

How this affects your paycheck

If you work in Tennessee, your paycheck will show federal income tax withheld but no state income tax line. The amount withheld for federal tax depends on your W-4 form, which you fill out when you start a job. That withholding goes to the IRS, not to Tennessee.

If you moved to Tennessee from a state that has income tax — such as New York, California, or Georgia — you do not need to change your W-4 when you cross the state line. Your federal withholding stays the same. The difference is that you will no longer see a state tax line on your stub. This means slightly more money in each paycheck, though you will encounter that money again when you buy things subject to sales tax.

Self-employed people and contractors do not have an employer withholding taxes, so they send estimated federal tax payments to the IRS four times a year. Tennessee does not require estimated state tax payments because there is no state income tax to estimate.

What happens when you file taxes

You still file a federal tax return every year, and the deadline and process are the same as in any other state. You report all income — wages, self-employment, investment income, rental income — to the IRS on your federal return.

Tennessee does not require a state income tax return. You do not file a separate state form, and you do not owe the state anything based on your income. This simplifies tax filing compared to states that require both federal and state returns.

If you have investment income — dividends, capital gains, or interest from savings — you report that on your federal return, but Tennessee does not tax it. Some people who moved from states with investment taxes find this is one of the financial benefits of living in Tennessee.

Tax considerations if you moved to or from Tennessee

If you moved to Tennessee from another state, you may have owed that state's income tax for the portion of the year you lived there. Most states tax you based on where you lived on December 31, so if you moved mid-year, you typically owe tax to both states for the months you lived in each. You report this on your federal return, and the IRS allows a credit for taxes paid to other states so you do not pay twice on the same income.

If you moved away from Tennessee to a state with income tax, you will now owe that state's tax on income earned while you live there. Your employer in the new state will withhold state tax, and you will file a state return. Tennessee will not tax you on income earned after you leave, even if you still own property there.

Remote workers present a special case. If you live in Tennessee but work for a company in another state, you generally owe tax to Tennessee (where you live) and not to the state where your employer is located. Tennessee will not tax your wages, but the other state might try to. You can usually claim a credit on your federal return for taxes paid to the other state.

Frequently Asked Questions

Do I still pay federal income tax if I live in Tennessee?

Yes. Tennessee has no state income tax, but federal income tax is separate and applies everywhere in the United States. Your employer withholds federal tax from your paycheck, and you file a federal return each year. The amount you owe depends on your income and tax bracket, not on where you live.

If I own a home in Tennessee, do I pay property tax?

Yes. Property tax is a local tax set by your county, not a state tax. The rate varies by county, but homeowners pay it annually based on the assessed value of the property. Renters do not pay property tax directly, but landlords factor it into rent.

Does Tennessee tax retirement income or Social Security?

No. Tennessee does not tax any income, including retirement income from pensions, 401(k) withdrawals, or Social Security benefits. This is one reason some retirees move to Tennessee. You still owe federal tax on retirement income if it exceeds certain thresholds, but Tennessee takes nothing.

What if I work remotely for a company outside Tennessee?

You owe tax to Tennessee (where you live), not to the state where your employer is based. Tennessee will not tax your wages. However, some states try to tax remote workers who live elsewhere. If that happens, you can claim a credit on your federal return for taxes paid to the other state.

Is Tennessee's sales tax the same everywhere in the state?

No. The state rate is 9.55 percent, but counties and cities add local sales taxes on top. The total rate ranges from 9.55 to over 10 percent depending on your location. Check your receipt or ask a store what the total rate is in your area.