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.
The trailing nexus problem
You move out of a high-tax state. Your RSUs keep vesting. Who gets to tax them? In most states with nonresident-income rules, the answer is: both, on a workday-allocation basis. A tranche vesting today, covering a grant made before you moved, is split between your old state and your new one in proportion to workdays.
What to tell payroll
Employer payroll systems will usually withhold for your current work state only. That's technically wrong if any portion was earned in the prior state. The correction happens at filing, via nonresident returns and a resident credit for taxes paid elsewhere.
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.
Related
- RSU taxes — Tennessee
- ISO exercises and AMT — Tennessee
- Capital gains tax — Tennessee
- QSBS — Tennessee
- RSU vesting schedules — Tennessee
- ESPP taxation — Tennessee
- NSO exercises and state tax — Tennessee
- 401(k) and retirement accounts — Tennessee
- Leaving Tennessee: how to cleanly break residency before a liquidity event — Tennessee
- Tennessee equity-comp overview