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

If you work in Tennessee or live there, you do not pay state income tax on the money you earn. Tennessee is one of nine states with no income tax on wages. This means your paycheck is not reduced by a state income tax withholding, and you do not file a state income tax return for wages.

However, Tennessee does tax certain types of income that are not wages. The state taxes interest, dividends, and capital gains through what it calls the Hall Income Tax. This tax applies only to income from investments and savings accounts, not to money you earn from a job.

If you moved to Tennessee from a state with income tax, or if you have investment income, understanding what Tennessee taxes and what it does not will affect how you file and what you owe.

Key Takeaways

  • Tennessee has no state income tax on wages, salaries, or self-employment income from a job or business.
  • Tennessee does tax interest and dividend income through the Hall Income Tax, though rates are low and many people owe nothing.
  • You do not file a Tennessee state income tax return for wages, but you may need to file if you have investment income above a certain amount.
  • Social Security benefits, pensions, and retirement account withdrawals are not taxed by Tennessee.

What types of income Tennessee does not tax

Tennessee does not tax wages from employment, self-employment income, Social Security benefits, or distributions from retirement accounts like 401(k)s and IRAs. If your income comes from working — whether as an employee, contractor, or business owner — Tennessee takes no state tax from it.

Pension income and military retirement pay are also not taxed in Tennessee. If you receive a pension from a former employer or the military, that money is yours to keep without a state income tax bite. This is one reason Tennessee is popular with retirees.

Because of these rules, many people who live and work in Tennessee have no state income tax obligation at all. You will not receive a W-2 with a Tennessee state tax withholding, and you will not need to file a state return based on wages alone.

The Hall Income Tax on investment income

Tennessee taxes interest income and dividend income through a tax called the Hall Income Tax. The rate is 1 percent on interest and 0.5 percent on dividends. These are low rates compared to other states, but they do apply if you have money in savings accounts, bonds, or dividend-paying stocks.

You do not owe Hall Income Tax on all investment income. There is a threshold: you owe tax only on interest income above $1,250 per year and dividend income above $1,250 per year. If your interest and dividends combined stay below that amount, you owe nothing.

Capital gains — the profit you make when you sell an investment at a higher price than you bought it — are not taxed by Tennessee. Only interest and dividends trigger the Hall Income Tax.

Who has to file a Tennessee tax return

If you earned only wages in Tennessee and have no investment income, you do not file a state return. Your federal return to the IRS is enough.

You must file a Tennessee return if your interest income exceeds $1,250 in a year, or your dividend income exceeds $1,250, or both combined exceed $1,250. The return is short — it reports only the investment income and the tax owed — and is filed with the Tennessee Department of Revenue.

If you lived in Tennessee for only part of the year, you may still owe Hall Income Tax on investment income earned while you were a resident. Check with the Department of Revenue if you moved mid-year and had investment income.

How to report investment income to Tennessee

If you owe Hall Income Tax, you file Form INC (Individual Income Tax Return) with the Tennessee Department of Revenue. The form asks for your name, address, Social Security number, and the amount of interest and dividend income you received during the year. You can file online through the department's website or by mail.

You will need the 1099-INT forms from your banks and the 1099-DIV forms from investment accounts to complete the return. These forms show exactly how much interest and dividends you earned and are sent to you by January 31 each year.

The deadline to file is the same as the federal deadline, usually April 15. If you file your federal return late, file your Tennessee return by the same date to avoid penalties.

What happens if you move to or from Tennessee

If you move to Tennessee from another state, you stop paying that state's income tax once you establish residency in Tennessee. Residency is usually determined by where you live on December 31 of the tax year. If you moved mid-year, you may owe tax to your old state for the months you lived there and to Tennessee for the months you lived there, depending on that state's rules.

If you move out of Tennessee to a state with income tax, you will owe that state's tax starting the year you move. You do not owe Tennessee tax after you leave, even if you still own property there.

Some states require you to file a part-year resident return if you moved during the year. Check the rules of both your old state and Tennessee to see what you owe.

Frequently Asked Questions

Do I have to pay federal income tax if I live in Tennessee?

Yes. Tennessee has no state income tax, but the federal government still taxes your wages. You file a federal return to the IRS and pay federal tax based on your income level. Tennessee's lack of state tax does not affect your federal obligations.

Are retirement account withdrawals taxed in Tennessee?

No. Withdrawals from 401(k)s, IRAs, and similar retirement accounts are not taxed by Tennessee. You may owe federal tax on some withdrawals, but Tennessee takes nothing. Pensions and military retirement pay are also tax-free in Tennessee.

What if I have a small amount of interest income — do I still file?

Only if your interest income exceeds $1,250 in the year. If you earned $800 in interest, you owe nothing and do not file a Tennessee return. Once you cross $1,250, you file and pay tax on the amount above the threshold.

Does Tennessee tax capital gains when I sell stocks?

No. Capital gains are not taxed by Tennessee. You can sell stocks, real estate, or other investments and keep all the profit without owing Tennessee tax. Only interest and dividend income are subject to the Hall Income Tax.

If I work remotely for a company in another state, do I owe Tennessee tax?

No. Tennessee taxes no income from wages or self-employment, regardless of where your employer is located. If you live in Tennessee and work remotely for a company in New York or California, Tennessee owes no tax on your salary. You may owe tax to the other state depending on its rules, but Tennessee takes nothing.