No. Tennessee has no state income tax on wages or salaries.
This is the single most significant financial fact about living in Nashville. It is also frequently misunderstood, so here is the complete picture.
What Tennessee Actually Taxes
Wages and salaries: not taxed at the state level. If you earn $80,000 working in Nashville, Tennessee takes nothing from that income.
Investment income: Tennessee had a tax on investment income called the Hall Income Tax, which applied to interest and dividends. It was phased out completely and eliminated as of January 1, 2021. There is no longer any state-level tax on investment income in Tennessee.
Retirement income: Not taxed. Social Security, pension distributions, 401(k) withdrawals, and IRA distributions are all exempt from Tennessee state income tax.
Capital gains: Also not taxed at the state level.
What Tennessee Does Tax
Sales tax: Tennessee’s state sales tax rate is 7%. Davidson County adds 2.25%, bringing the combined rate in Nashville to 9.25%. This is among the highest combined sales tax rates in the United States. Groceries are taxed at a reduced rate of 4% state plus local add-ons.
Property tax: Property taxes in Tennessee and Nashville are lower than the national average, which benefits homeowners. However, the benefits flow to property owners, not renters.
Business taxes: Tennessee does levy business taxes (B&O-style taxes) and franchise taxes on businesses. Sole proprietors may have some exposure depending on entity type and income structure.
The Real-World Dollar Difference
For a Nashville resident earning $75,000 per year:
If they lived in Georgia (5.75% flat income tax): approximately $4,312 in state income tax
If they lived in Colorado (4.4%): approximately $3,300 in state income tax
If they lived in Illinois (4.95%): approximately $3,712 in state income tax
If they lived in Tennessee: $0
That $3,000-4,000 in annual savings is real money. Compounded over a career, it is a meaningful wealth-building advantage. For high earners, the advantage scales proportionally.
The Sales Tax Offset
The honest counterpoint: Tennessee’s 9.25% combined sales tax in Nashville is a real cost. A household spending $50,000 per year on taxable goods pays roughly $4,625 in sales tax annually. But since groceries get the reduced rate and many major purchases (housing, healthcare) are exempt, the effective sales tax burden on a typical household is lower than the maximum rate suggests.
The academic consensus is that income taxes and consumption taxes hit different demographic groups differently. Income taxes proportionally burden higher earners; consumption taxes proportionally burden lower earners and people who spend rather than save. Tennessee’s tax structure is more favorable to high earners and savers than to low-income households.
For People Moving From High-Tax States
The effective income tax savings when moving from California (up to 13.3%), New York (up to 10.9%), or Oregon (up to 9.9%) to Tennessee can be substantial. A $200,000 earner moving from California to Nashville saves approximately $20,000-$26,000 per year in state income tax. This is a significant factor driving the relocation of high-earning professionals and retirees from high-tax coastal states to Nashville.
For remote workers earning coastal salaries while paying Tennessee’s cost of living, no state income tax is often the deciding variable in the financial case for the move.
Sources:
- Tennessee Department of Revenue – Hall Income Tax Elimination: tn.gov/revenue
- Tennessee Department of Revenue – Individual Income Tax: tn.gov/revenue
- Nashville SmLS – Cost of Living in Nashville: nashvillesmls.com
- The Agency Nashville – Should You Move to Nashville in 2025: theagency-nashville.com