Does Tennessee tax RSU income the same as wages?

Tennessee has no state income tax on wages, so RSU ordinary income is federal-only. Note that Washington residents still owe the 7% state long-term capital gains tax on sales above the threshold, and other states may claw back some income if your grant pre-dated your move.

What happens if I exercise ISOs while living in Tennessee?

Tennessee does not run a separate state AMT, so only federal AMT applies. You still need to model the bargain element carefully if you plan a cashless exercise-and-sell.

I moved to Tennessee from another state. Who taxes my vesting RSUs?

Most high-tax states (CA, NY, MA) source RSU ordinary income to workdays between grant and vest. If your grant pre-dates your Tennessee move, expect the old state to tax the portion of each tranche attributable to workdays earned there. Tennessee taxes the remainder.

Can I reduce Tennessee taxes by timing my RSU sales?

Tennessee has no state income tax, so sale timing affects only your federal bill. NIIT and federal capital-gains brackets are still in play.

ESPP taxation in Tennessee: ordinary income, qualifying dispositions, and payroll

What Tennessee residents actually pay

Tennessee has no state income tax on wages. That removes a layer — but federal AMT, federal capital gains, and the 3.8% Net Investment Income Tax still apply, and a prior state may still have a claim.

No state income tax as of 2021.

Two taxable events, one plan

An ESPP produces two taxable events. The first is ordinary discount income at purchase (for non-qualified plans or disqualifying dispositions of qualified plans), which Tennessee does not tax at the state level. The second is capital gain or loss on sale, taxed at long- or short-term rates federally and at zero at the state level.

Qualifying disposition math

A qualifying disposition requires you hold the shares two years from offering date and one year from purchase. Holding that long converts some of the gain to long-term federal capital gains, which for a high earner in Tennessee costs only federal rates. The trade-off: two years of concentration risk in your employer's stock.

Payroll reporting

Discount income at purchase flows through W-2 Box 1 and is withheld on payroll. The cost basis reported on Form 1099-B usually excludes the W-2 income component, so you must adjust on Form 8949 to avoid double-taxation. This is the most common ESPP filing error.

Frequently asked

Does Tennessee tax RSU income the same as wages?: Tennessee has no state income tax on wages, so RSU ordinary income is federal-only. Note that Washington residents still owe the 7% state long-term capital gains tax on sales above the threshold, and other states may claw back some income if your grant pre-dated your move.
What happens if I exercise ISOs while living in Tennessee?: Tennessee does not run a separate state AMT, so only federal AMT applies. You still need to model the bargain element carefully if you plan a cashless exercise-and-sell.
I moved to Tennessee from another state. Who taxes my vesting RSUs?: Most high-tax states (CA, NY, MA) source RSU ordinary income to workdays between grant and vest. If your grant pre-dates your Tennessee move, expect the old state to tax the portion of each tranche attributable to workdays earned there. Tennessee taxes the remainder.
Can I reduce Tennessee taxes by timing my RSU sales?: Tennessee has no state income tax, so sale timing affects only your federal bill. NIIT and federal capital-gains brackets are still in play.