Tennessee does not tax wages or salaries
Tennessee has no state income tax on wages, salaries, or most other forms of personal income. If you work in Tennessee or live there, you do not owe state income tax on what you earn from a job. This is one of nine states in the U.S. with no wage tax at all.
However, Tennessee does tax certain types of investment income. The state taxes interest and dividend income at a flat rate of 3.85 percent. This applies to money you earn from savings accounts, bonds, stocks, and mutual funds — but only if you have more than a small amount of investment income in a year.
Because Tennessee has no wage tax, your federal tax filing does not change based on where you live or work in Tennessee. You still file federal taxes the same way. The difference is that you will not receive a state tax form to complete or a state tax bill to pay.
Key Takeaways
- Tennessee does not tax wages, salaries, or self-employment income from work.
- Tennessee taxes interest and dividend income at 3.85 percent, but only if your total investment income exceeds $1,250 in a single year.
- You do not file a state income tax return in Tennessee unless you have investment income above the threshold.
- Other states tax wages while Tennessee does not, so your take-home pay may be higher than in states with income tax.
Who must file a Tennessee tax return
Most Tennessee residents do not file a state tax return because there is no wage tax. You only file a Tennessee return if you have investment income — specifically interest or dividends — that exceeds $1,250 in a calendar year. If your investment income is $1,250 or less, you owe nothing and do not file.
The $1,250 threshold applies to the total of all your interest and dividend income combined. If you have $800 in interest from a savings account and $500 in dividends from stocks, you have $1,300 total, which means you cross the threshold and must file. If you have $1,200 in interest and nothing else, you stay below the threshold.
If you are married and file jointly, each spouse's income is counted separately for the threshold. This means a married couple can have up to $2,500 in combined investment income ($1,250 each) before either spouse owes state tax.
How to report investment income to Tennessee
If you must file because your investment income exceeds $1,250, you use Tennessee Form IT-103, the state's individual income tax return. You report your interest and dividend income on this form and calculate the 3.85 percent tax owed.
The form is straightforward because Tennessee only taxes these two types of income. You do not report wages, self-employment income, or capital gains. This makes the Tennessee return much shorter than a federal return.
You can obtain Form IT-103 from the Tennessee Department of Revenue website. The filing important date is the same as your federal important date — typically April 15 of the following year. If you file your federal return late, your Tennessee return is also due by that same extended date.
What types of income Tennessee does not tax
Tennessee does not tax wages from employment, no matter how much you earn. It does not tax self-employment income from running a business. It does not tax Social Security benefits, retirement account withdrawals, or pension income. It does not tax capital gains from selling stocks or real estate.
This broad exemption is why Tennessee residents often keep more of their income than residents of states with broad income taxes. A person earning $60,000 in wages in Tennessee owes no state income tax on that amount. The same person in a state with a 5 percent income tax would owe $3,000 to that state.
Tennessee does have other taxes — sales tax, property tax, and excise taxes on items like gasoline and alcohol. But the absence of a wage tax is the defining feature of Tennessee's tax system.
Moving to Tennessee or working remotely from Tennessee
If you move to Tennessee from another state, you stop owing 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, which typically means within 30 to 60 days of arrival. You should notify your employer of your address change so they stop withholding for your old state.
If you work remotely for a company in another state but live in Tennessee, you generally owe tax only to Tennessee — which means you owe no state income tax at all on your wages. However, some states tax remote workers based on where the company is located, not where the worker lives. Check with your employer's state to confirm, but in most cases, living in Tennessee protects you from wage tax even if you work for an out-of-state employer.
If you work in Tennessee but live in another state, you typically owe tax to the state where you live, not to Tennessee. Tennessee does not tax non-residents on wages earned in the state. Your home state will want its share of your income.
Tennessee tax forms and where to find them
The main form you might need is Tennessee Form IT-103, the individual income tax return. This is only necessary if you have investment income over $1,250. You can read it from the Tennessee Department of Revenue website at tn.gov/revenue.
The Department of Revenue also publishes instructions with the form that explain how to calculate your tax and where to send the return. If you have questions about whether you must file or how much you owe, you can contact the Department of Revenue directly by phone or through their website.
Many tax software programs do not include Tennessee forms because most residents do not need them. If you use software to file your federal return and you have investment income, you may need to file the Tennessee form separately by mail or through the Department of Revenue's online system.
Frequently Asked Questions
Do I have to file a Tennessee return if I only have wage income?
No. Tennessee does not tax wages, so you do not file a state return based on employment income alone. You only file if you have investment income (interest or dividends) over $1,250.
What if I have $1,250 exactly in investment income?
The threshold is $1,250, which means you must file if your investment income is $1,250 or more. If you have exactly $1,250, you file and owe tax on that amount at 3.85 percent, which would be about $48.13.
Does Tennessee tax retirement account withdrawals?
No. Withdrawals from IRAs, 401(k)s, pensions, and similar retirement accounts are not taxed by Tennessee. Social Security benefits are also not taxed. Only interest and dividend income from investments trigger the filing requirement.
If I move out of Tennessee, do I still owe tax on investment income I earned while I lived there?
You owe Tennessee tax on investment income earned while you were a Tennessee resident. Once you move and establish residency elsewhere, you owe tax to your new state on income earned after the move. Report the income to Tennessee for the year you lived there, then to your new state going forward.
Can I file my Tennessee return online?
The Tennessee Department of Revenue does not offer a direct online filing system for individual returns. You can file by mail or use third-party tax software that supports Tennessee forms. Check the Department of Revenue website for current filing options and approved software providers.