Tennessee does not have a state income tax on wages

Tennessee eliminated its state income tax on wages in 2021. If you work in Tennessee or live there, you do not pay state income tax on the money you earn from a job. This applies whether you are a W-2 employee or self-employed.

However, Tennessee does tax certain types of income that are not wages. Understanding which income is taxed and which is not matters when you file your federal return or plan your finances.

Key Takeaways

  • Tennessee has no state income tax on wages from employment, whether you work full-time, part-time, or are self-employed.
  • Tennessee taxes interest and dividend income at 3.75 percent, though this tax phases out completely by 2026.
  • You still file a federal tax return if you owe federal taxes, but you do not file a separate Tennessee state income tax return.
  • Other states may tax your income if you work there, even though Tennessee does not — your employer's location matters.

What types of income Tennessee does tax

While wages are untaxed, Tennessee taxes interest income and dividend income at a rate of 3.75 percent. This includes interest from savings accounts, bonds, and certificates of deposit, as well as dividends from stocks and mutual funds.

The state is phasing out this tax gradually. The tax rate decreases each year and is scheduled to disappear entirely by 2026. If you received interest or dividends in 2024 or 2025, you may still owe Tennessee tax on that income, but the amount you owe shrinks each year as the rate drops.

Retirement income — including Social Security, pensions, and distributions from retirement accounts — is not taxed by Tennessee. This applies to both current retirees and those who will retire in the future.

How this affects your federal tax filing

Not having a state income tax does not change your federal tax obligations. If you owe federal income tax, you still file a Form 1040 with the IRS. Tennessee simply does not require a separate state return for most people.

If you had interest or dividend income in 2024 or 2025, you may need to report it to Tennessee, though the state's tax department provides forms and instructions on their website. Once the tax phases out completely, even this reporting requirement will end.

If you work in another state but live in Tennessee

The state where you work, not where you live, usually taxes your wages. If you live in Tennessee but work in Kentucky, Georgia, or another state, that state may tax your income even though Tennessee does not. You would owe tax to the state where you earned the money.

Some states have reciprocal agreements that prevent double taxation, but you need to check the specific rules between Tennessee and the state where you work. Your employer's payroll department can tell you whether they withhold taxes for another state.

If you live in Tennessee but work remotely for an out-of-state employer

Most states, including Tennessee, do not tax remote workers who live there. If you live in Tennessee and work remotely for a company based in another state, Tennessee does not tax that income. Your home state is where the income is taxed.

However, the employer's state may try to tax the income. This depends on that state's rules and whether your employer has a physical presence there. Ask your payroll department which state they withhold taxes for — that is usually the state that claims the income.

What you need to know about sales tax and property tax

Tennessee has no state income tax, but it does have a sales tax of 9.55 percent statewide (this varies slightly by county because local taxes are added). You pay this tax when you buy most goods and some services.

Tennessee also taxes property through local property taxes. The rate depends on your county and municipality. Property tax is not a state tax — it goes to your local government — but it is a significant cost of owning real estate in Tennessee.

Frequently Asked Questions

Do I need to file a Tennessee tax return?

Most people do not. If you only have wage income, you file your federal return and you are done. If you had interest or dividend income in 2024 or 2025, check Tennessee's tax department website to see if you need to report it — the threshold is low, but not everyone crosses it.

Will Tennessee bring back income tax on wages?

There is no current proposal to do so. The state legislature eliminated the tax in 2021, and it remains off the books. Tax law can always change, but there is no indication this will happen soon.

What if I moved to Tennessee from another state — do I owe back taxes?

No. Tennessee taxes only income earned while you lived there. Income you earned in another state before you moved is taxed by that state, not by Tennessee. Your previous state's tax rules apply to the years you lived there.

Does Tennessee tax retirement income like pensions or Social Security?

No. Tennessee does not tax Social Security, pensions, 401(k) distributions, or IRA withdrawals. Retirees pay no state income tax on these sources of income.

If I own a business in Tennessee, do I pay state income tax?

No. Business income is not taxed by Tennessee, just as wage income is not. You file your federal business tax return, but Tennessee does not tax the profit from a sole proprietorship, partnership, or S-corporation.