Does Tennessee have state income tax? No. Tennessee does not impose an individual state income tax on wages, salaries, Social Security benefits, pensions, or most other forms of personal income.
Tennessee previously imposed the Hall Income Tax, which applied only to certain interest and dividend income. However, the Hall Income Tax was fully repealed for tax periods beginning on or after January 1, 2021. Tennessee residents should not file a Hall Income Tax return for tax years beginning after that date.
Although Tennessee’s lack of a personal income tax can make the state attractive to workers, retirees, and business owners, it does not mean residents pay no taxes. Tennessee still collects revenue through sales taxes, property taxes, business taxes, fuel taxes, and other state and local charges. Residents also remain responsible for federal income tax and applicable payroll taxes.
This guide explains how Tennessee’s tax system works, which types of income are exempt from state taxation, and what taxes Tennessee residents still need to pay.
Does Tennessee Have State Income Tax on Wages?
Tennessee does not have a state individual income tax on wages or salaries.
When you work for an employer in Tennessee, your employer generally does not withhold Tennessee individual income tax from your paycheque. Your earnings are still subject to federal income tax, Social Security tax, and Medicare tax, but there is normally no Tennessee state income tax deduction.
The Tennessee Department of Revenue confirms that the state does not tax wages, employer-sponsored retirement income, Social Security benefits, pensions, IRA distributions, 401(k) withdrawals, annuity distributions, or most other forms of individual income.
For example, imagine that a Tennessee employee earns $70,000 per year. That employee may have the following deductions from each paycheque:
- Federal income tax withholding
- Social Security tax
- Medicare tax
- Health insurance premiums
- Retirement-plan contributions
- Other voluntary workplace deductions
However, there should generally be no Tennessee individual income tax withholding.
If your pay statement includes a state tax deduction, check whether it relates to work performed in another state, a previous employment location, or a different type of state-administered charge.
What Was the Tennessee Hall Income Tax?
Some people are confused about Tennessee’s tax rules because the state previously had a limited tax known as the Hall Income Tax.
The Hall Income Tax did not apply to regular wages or salaries. It primarily applied to certain interest earned from bonds and notes and dividends received from stocks. The tax was named after the Tennessee senator who sponsored the original legislation in 1929.
Tennessee gradually reduced the Hall Income Tax rate before fully repealing it. The repeal applies to tax periods beginning on or after January 1, 2021.
As a result, Tennessee residents no longer pay the Hall Income Tax on qualifying interest and dividend income. They also should not submit Hall Income Tax returns for current tax years.
Federal taxes may still apply to interest, dividends, and investment gains. The elimination of Tennessee’s Hall Income Tax only affects state taxation.
Does Tennessee Tax Retirement Income?
Tennessee does not impose individual state income tax on retirement income.
The following types of retirement income are generally not subject to Tennessee individual income tax:
- Social Security retirement benefits
- Employer-sponsored pensions
- 401(k) distributions
- Traditional IRA withdrawals
- Roth IRA withdrawals
- Annuity distributions
- Government retirement benefits
- Military retirement income
The Tennessee Department of Revenue specifically states that Social Security, pension income, IRA distributions, 401(k) distributions, and annuity distributions are not subject to Tennessee individual income tax.
This policy is one reason Tennessee may appeal to retirees. A retiree can receive retirement income without owing Tennessee personal income tax on those payments.
However, federal income tax rules remain important. Some retirement distributions may be federally taxable even though Tennessee does not tax them. Traditional IRA and 401(k) withdrawals, for example, are commonly included in federal taxable income unless an exception applies.
Does Tennessee Tax Social Security Benefits?
No. Tennessee does not tax Social Security benefits.
At the federal level, a portion of Social Security benefits may become taxable depending on the taxpayer’s combined income and filing status. At the Tennessee level, however, Social Security benefits are not subject to individual income tax.
Retirees should therefore separate their federal and state obligations when planning their taxes. A payment can be exempt from Tennessee tax while remaining partially taxable on a federal return.
Does Tennessee Tax Investment Income?
Tennessee no longer imposes the Hall Income Tax on interest and dividend income.
Before 2021, certain taxpayers could owe Tennessee tax on qualifying bond interest and stock dividends even though wages were not taxed. The repeal eliminated that state-level individual tax for current tax years.
Tennessee also generally does not impose a separate personal income tax on an individual’s capital gains. Nevertheless, capital gains, dividends, interest, cryptocurrency profits, and other investment earnings can still be taxable federally.
Investment income received through a business entity may also be affected by Tennessee business, franchise, or excise tax rules. Investors and business owners with complex transactions should not assume that the absence of individual income tax eliminates every possible Tennessee filing requirement.
Do Tennessee Residents Still Pay Federal Income Tax?
Yes. Living in Tennessee does not exempt a person from federal income tax.
Federal income tax applies across the United States and is administered by the Internal Revenue Service. Tennessee residents generally file the same federal income tax returns as residents of states that impose state income tax.
Federal income tax uses a progressive bracket system. This means higher rates apply only to portions of taxable income that fall within higher brackets. Moving into a higher bracket does not cause all of your income to be taxed at the higher rate.
For tax year 2026, federal individual income tax rates continue to range from 10% to 37%. The 2026 standard deduction is $16,100 for single filers and married individuals filing separately, $32,200 for married couples filing jointly, and $24,150 for heads of household. These amounts generally apply to returns filed in 2027.
If your federal withholding appears unusually high, read our guide explaining why federal income tax is so high.
What Payroll Taxes Do Tennessee Workers Pay?
Tennessee workers generally remain subject to Social Security and Medicare taxes, collectively known as FICA taxes.
For employees, the Social Security withholding rate is 6.2%, and employers generally contribute another 6.2%. The Medicare withholding rate is generally 1.45% for employees, with employers contributing a matching 1.45%.
For earnings in 2026, Social Security tax applies up to the annual wage base of $184,500. Medicare tax does not have the same wage-base limit, and an Additional Medicare Tax may apply to wages above the applicable federal threshold.
Therefore, even without Tennessee income tax, an employee’s gross salary will not equal their take-home pay.
Consider a worker earning $5,000 per month. Their paycheque could still be reduced by:
- Federal income tax withholding
- Social Security tax
- Medicare tax
- Medical, dental, or life insurance premiums
- 401(k) contributions
- Flexible spending or health savings account contributions
The absence of Tennessee income tax only removes one potential category of withholding.
Do Self-Employed Tennessee Residents Pay Income Tax?
Self-employed Tennessee residents generally do not pay Tennessee individual income tax on their personal earnings. However, they may owe federal income tax, federal self-employment tax, and Tennessee business-related taxes.
The federal self-employment tax rate is generally 15.3%, consisting of 12.4% for Social Security and 2.9% for Medicare. It typically applies when an individual has at least $400 in net earnings from self-employment, although special rules and exceptions may apply.
Self-employed individuals may also need to make quarterly estimated federal tax payments because there is no employer withholding taxes from their income.
Tennessee businesses can be subject to a state business tax based on taxable gross receipts. Depending on the entity structure and level of activity, a business may also need licences, registrations, sales tax accounts, or franchise and excise tax filings.
The lack of individual income tax should not be interpreted as an exemption from all business taxation.
Do LLCs and Corporations Pay Tennessee Income Tax?
Tennessee’s tax treatment of businesses differs from its treatment of individuals.
Corporations, limited liability companies, limited partnerships, and certain business trusts doing business in Tennessee may be subject to franchise and excise taxes.
The Tennessee excise tax is based on taxable net earnings, while the franchise tax is generally based on Tennessee net worth. The published rates are 6.5% of Tennessee taxable income for the excise tax and 0.25% of Tennessee net worth for the franchise tax. A minimum franchise tax of $100 can apply to registered entities even when they are inactive.
Entity classification, exemptions, ownership structure, revenue, and business activities can affect the final tax obligation. Business owners should review Tennessee Department of Revenue requirements or consult a qualified tax professional.
What Happens If You Live in Tennessee but Work in Another State?
Living in Tennessee does not automatically prevent another state from taxing income earned there.
Suppose you are a Tennessee resident but physically work in Kentucky, Georgia, North Carolina, or another state with an individual income tax. The work state may require your employer to withhold its income tax, and you may need to file a nonresident return in that state.
Remote work can be more complicated. Your tax obligation may depend on:
- Where you physically perform the work
- Where your employer is located
- Whether you travel across state lines
- The other state’s sourcing rules
- Whether the states have a reciprocal agreement
- How many days you work in each jurisdiction
Tennessee generally will not charge an individual income tax on those wages. However, that does not cancel a possible obligation to another state.
People who recently moved to Tennessee may also need to file a part-year resident return in their previous state for income earned before the move.
What Taxes Do Tennessee Residents Pay Instead?
Tennessee relies heavily on taxes other than individual income tax.
Sales and Use Tax
The general Tennessee state sales tax rate is 7% on most taxable goods and services. Food and food ingredients generally have a lower 4% state rate, although prepared food, sweets, alcoholic beverages, dietary supplements, and tobacco can be taxed under different rules.
Local jurisdictions also impose sales and use taxes. Tennessee states that local sales tax rates cannot exceed 2.75%, meaning the combined rate on many purchases can approach 9.75%, depending on the location and transaction.
This relatively significant sales tax is one way Tennessee raises revenue without taxing individual wages.
Property Tax
Tennessee property taxes are primarily administered at the local level. County commissions and city governing bodies establish local property tax rates, while local assessors determine property values under state rules.
Property taxes vary by county, municipality, assessed value, property classification, and local tax rate.
Some homeowners may qualify for Tennessee property tax relief, including qualifying low-income elderly homeowners, disabled homeowners, disabled veterans, and eligible surviving spouses.
Property taxes may also be deductible on a federal return when the taxpayer itemises deductions and satisfies the applicable limitations. Learn more about how much of your property taxes are tax deductible.
Fuel, Vehicle, and Other Taxes
Tennessee residents may also pay taxes and fees connected with:
- Motor fuel
- Vehicle registration
- Alcohol and tobacco
- Hotel stays
- Insurance
- Real estate transfers
- Certain professional or business activities
The exact cost depends on the product, service, county, municipality, and type of transaction.
Does Having No State Income Tax Guarantee a Bigger Refund?
No. A state’s lack of individual income tax does not determine the size of your federal tax refund.
Your federal refund generally equals the amount of federal tax you paid during the year minus your actual federal tax liability, after accounting for refundable credits.
A smaller refund may result from:
- Lower federal withholding
- A new or updated Form W-4
- Higher income
- Multiple jobs
- Freelance or investment income
- Reduced eligibility for tax credits
- Changes in dependants
- Bonuses or supplemental wages
- A spouse’s income
- Insufficient estimated payments
Claiming zero allowances under the old withholding system also did not guarantee a large refund. Modern Form W-4 calculations no longer use the traditional allowance system in the same way.
For a detailed explanation, see why your tax return is so low when you claim 0.
Advantages of Living in a State Without Individual Income Tax
The absence of Tennessee individual income tax may offer several benefits.
Workers may keep more of each paycheque compared with workers earning the same salary in a state with a significant income tax. Retirees may receive pensions, Social Security benefits, and retirement-account distributions without Tennessee personal income tax. Investors no longer pay the former Hall Income Tax on qualifying interest and dividends.
The simpler individual tax structure can also reduce paperwork because most Tennessee residents do not need to file a Tennessee personal income tax return.
However, the total cost of living should still be considered. Sales taxes, housing costs, insurance, property taxes, transport expenses, and local charges can offset some of the savings.
A household should compare its complete financial situation instead of choosing a state based only on income tax.
Frequently Asked Questions
Does Tennessee have state income tax in 2026?
No. Tennessee does not impose an individual state income tax on wages, salaries, retirement benefits, or most other forms of personal income. The former Hall Income Tax was repealed for tax periods beginning on or after January 1, 2021.
Does Tennessee tax paycheques?
Tennessee does not impose individual state income tax on wages. A paycheque may still include federal income tax, Social Security, Medicare, insurance, retirement contributions, and other deductions.
Does Tennessee tax pensions or 401(k) withdrawals?
No. Tennessee does not impose individual income tax on pensions, Social Security benefits, 401(k) withdrawals, IRA distributions, or annuity distributions.
Do Tennessee residents need to file a state tax return?
Most individuals do not file a Tennessee personal income tax return because the state no longer has an individual income tax. A person may still have Tennessee business, sales tax, franchise tax, excise tax, or other filing obligations.
Can another state tax a Tennessee resident’s wages?
Yes. If a Tennessee resident physically works or earns taxable income in another state, that state may require withholding and a nonresident income tax return.
Does Tennessee have high sales tax?
Tennessee’s general state sales tax rate is 7%, and local sales taxes can increase the combined rate. The local rate may be as high as 2.75%.
Final Answer: Does Tennessee Have State Income Tax?
Tennessee does not have an individual state income tax. Residents do not pay Tennessee income tax on wages, salaries, Social Security benefits, pensions, 401(k) withdrawals, IRA distributions, or most other personal income.
The former Hall Income Tax on certain interest and dividend income was fully repealed for tax periods beginning January 1, 2021.
However, Tennessee residents still pay federal income tax, Social Security tax, Medicare tax, sales tax, local property tax, and other applicable taxes. Business owners may also have Tennessee business, franchise, and excise tax responsibilities.
Understanding the difference between state income tax and other taxes can help Tennessee residents estimate their take-home pay, plan for retirement, manage withholding, and avoid unexpected tax bills.
This article provides general educational information and should not be considered personalised tax, legal, or financial advice. Tax rules can change, and individual circumstances vary. Consult a qualified tax professional for advice about your specific situation.