Tennessee State Income Tax Overview

Tennessee is one of a small number of states that does not impose a personal income tax on wages or salaries. If you live or work in Tennessee, you do not file a Tennessee state income tax return on earned income, and there is no Tennessee equivalent to a Form 1040 for wages.

That said, no state income tax does not mean no taxes. Tennessee funds state and local government through other taxes, including sales taxes, property taxes, and business taxes. Understanding how Tennessee collects revenue, and how that compares to other states, is important whether you are moving to Tennessee, already living in the state, or considering relocating elsewhere.

This page explains how Tennessee's tax system works, what taxes residents do and do not pay, and how Tennessee compares to other states from a tax perspective.

Does Tennessee Have a State Income Tax?

No. Tennessee does not have a state-level personal income tax on wages or salaries.

Residents of Tennessee do not pay state income tax on earned income such as wages, salaries, or self-employment income. There is no Tennessee state income tax return required for earned income, and no state income tax withholding taken from paychecks.

Tennessee previously imposed a tax on certain types of investment income, commonly referred to as the Hall income tax. That tax has been fully repealed, and Tennessee no longer taxes interest or dividend income at the state level.

It is important to note that this applies only to state income taxes. Tennessee residents are still required to file and pay federal income taxes with the IRS, just like residents of every other state.

How Tennessee Raises Revenue

Tennessee's lack of a tax on earned income does not mean the state operates without revenue. Instead of taxing wages and salaries, Tennessee relies more heavily on consumption-based taxes, property taxes, and business taxes to fund state and local government.

Understanding this trade-off is important, especially for people moving to Tennessee from high–income-tax states.

Sales and Use Taxes

Sales and use taxes are a major source of revenue for Tennessee.

• Tennessee imposes a statewide sales tax on most goods and certain services.
• Local governments may impose additional sales taxes, increasing the total rate in many areas.
• Sales tax applies broadly, meaning residents tend to pay more tax when they spend, rather than when they earn.

For many households, sales taxes represent a significant portion of their overall state and local tax burden.

Property Taxes

Property taxes in Tennessee are imposed at the local level.

• Rates vary by county and municipality.
• Property taxes help fund local services such as schools, emergency services, and infrastructure.
• Property taxes are generally lower than in many other states, but they still represent an ongoing cost for homeowners.

For homeowners and long-term residents, property tax considerations still matter.

Corporate and Business Taxes

While individuals are not subject to state income tax on wages, Tennessee does collect revenue from businesses.

• Tennessee imposes a franchise tax and an excise tax on certain businesses.
• These taxes are based on business activity rather than personal income.
• Business taxes play an important role in offsetting the lack of an individual income tax.

This distinction is important for business owners and entrepreneurs comparing Tennessee to other low-tax states.

Other State and Local Taxes

Tennessee also collects revenue through:

• Fuel taxes
• Alcohol and tobacco taxes
• Tourism and hospitality-related taxes
• Various state and local fees and assessments

Consumer spending and tourism contribute significantly to Tennessee's revenue structure.

How long do you have to live in Tennessee to avoid taxes?

Residency for tax purposes is demonstrated by whether or not an individual has taken steps to move into Tennessee, and, sever residency in a previous state or country. You may still need to file a full-year, part-year, or non-resident income tax return in your current state for the year you move to Tennessee.

If you are considering moving to Tennessee, remember that personal income taxes are just part of the overall tax burden. In the state of Tennessee, however, the overall cost of living is relatively low compared to other high tax states such as California, New Jersey, and New York.

Bottom line: Tennessee does not tax wages or investment income at the state level, but it relies heavily on sales, property, and business taxes. For many residents, this structure can be advantageous, but it is not tax-free living.

Last updated: January 17, 2026

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