Tennessee does not have a state income tax on wages or salaries
If you work in Tennessee or move there for a job, you will not pay state income tax on what you earn. Tennessee is one of nine states with no tax on wages, which means your paycheck stays larger than it would in most other states.
This applies to W-2 wages from an employer, 1099 income from self-employment, and most other forms of earned income. The state does tax certain types of investment income — specifically dividends and interest — but only on amounts above a threshold, and that tax is being phased out through 2026.
Because Tennessee has no income tax, the state funds itself through sales tax, property tax, and other revenue sources. Your federal income tax obligation does not change based on where you live, so you will still owe the IRS what you owe them.
Key Takeaways
- Tennessee collects no state income tax on wages, salaries, or self-employment income, so your take-home pay is not reduced by a state tax.
- The state does tax investment income (dividends and interest) above certain thresholds, though this tax is scheduled to end by 2026.
- Federal income tax still applies to Tennessee residents — state income tax and federal income tax are separate obligations.
- Tennessee funds state services through sales tax, property tax, and other sources instead of income tax.
- If you move to Tennessee from a state with income tax, your paycheck will be larger by the amount you no longer owe in state tax.
How the lack of income tax affects your paycheck
When you receive a paycheck in Tennessee, you will see deductions for federal income tax, Social Security, and Medicare — but no line for state income tax. The amount withheld depends on what you told your employer on your W-4 form and your income level, not on where you live.
If you moved to Tennessee from a state like California, New York, or Illinois, your take-home pay will increase by roughly the percentage that state charged in income tax. Someone earning $50,000 per year might see an extra $2,000 to $4,000 annually, depending on which state they came from. This is one reason people relocate for work to Tennessee.
Self-employed people and freelancers also pay no Tennessee state income tax on their net business income. You will still owe federal self-employment tax and federal income tax, but the state portion disappears.
What Tennessee taxes instead of income
Tennessee makes up the revenue it does not collect from income tax through a sales tax that is higher than the national average. The state sales tax is 9.55%, and local counties add their own rate on top of that, bringing the total to between 9.55% and 9.75% depending on where you shop.
The state also collects property tax on real estate and vehicles. Property tax rates vary by county but are generally moderate compared to other states. If you own a home or car in Tennessee, you will pay property tax based on the assessed value.
Tennessee also taxes certain types of investment income. Interest and dividend income above $1,250 per person (or $2,500 for married couples filing jointly) is subject to the Hall Income Tax, though this tax is being phased out and will end by 2026. Most working people do not owe this tax because it only applies to investment income, not wages.
Investment income and the phase-out of the Hall Income Tax
If you have money in savings accounts, bonds, or dividend-paying stocks, Tennessee may tax the income those investments generate — but only above a threshold. For the 2024 tax year, interest and dividends above $1,250 per person are taxable. This threshold increases each year, and the entire tax is scheduled to disappear by 2026.
The Hall Income Tax does not explore to retirement accounts like 401(k)s or IRAs, so money you save for retirement is not affected. It also does not explore to capital gains — the profit you make when you sell an investment at a higher price than you bought it.
Because this tax is being phased out, the threshold keeps rising and fewer people owe it each year. By 2026, Tennessee will have no tax on investment income either, making it a state with no income tax of any kind.
Federal income tax still applies in Tennessee
Removing state income tax does not change what you owe to the federal government. You will still file a federal tax return and pay federal income tax based on your income, filing status, and deductions — the same as someone living in any other state.
Your federal withholding comes out of your paycheck the same way it does everywhere else. The difference is that Tennessee does not take an additional state withholding, so more of your gross pay reaches your bank account.
When you file your taxes, you will complete a federal return (Form 1040) and send it to the IRS. You will not file a Tennessee state income tax return because there is no state income tax to report.
Moving to Tennessee and tax considerations
If you relocate to Tennessee from another state, your tax situation changes on the date you become a Tennessee resident. Most states define residency by where you live on December 31 of the tax year, so if you move mid-year, you may owe income tax to both your old state and Tennessee for that year.
Some states tax you on income earned while you were still a resident, even after you move. If you left a state like New York or California mid-year, you may need to file a part-year resident return in that state for the months you lived there. Tennessee will not tax you on any income because it has no income tax.
The financial benefit of moving to Tennessee depends on your income level and which state you came from. Someone earning $100,000 per year might save $5,000 to $10,000 annually in state taxes by moving from a high-tax state to Tennessee, though this varies based on the specific state and your tax situation.
Frequently Asked Questions
Do I have to file a Tennessee state tax return?
No. Because Tennessee has no state income tax, you do not file a state return. You will file a federal return with the IRS if your income is above the threshold for your filing status, but Tennessee does not require a state return.
If I work in Tennessee but live in another state, do I owe Tennessee income tax?
No. Tennessee has no income tax, so it does not tax anyone on wages — whether they live in the state or not. Your home state may tax you on income earned in Tennessee, depending on that state's rules, but Tennessee itself will not.
Are retirement withdrawals taxed in Tennessee?
No. Withdrawals from 401(k)s, IRAs, and pensions are not subject to Tennessee state income tax. You will owe federal income tax on most retirement withdrawals, but Tennessee does not tax them.
What about Social Security income — is that taxed in Tennessee?
No. Tennessee does not tax Social Security benefits. You may owe federal income tax on your benefits depending on your total income, but the state will not tax them.
If I'm self-employed, do I owe Tennessee income tax?
No. Self-employed people in Tennessee do not owe state income tax on their business income. You will owe federal self-employment tax and federal income tax, but Tennessee collects no state income tax from anyone.