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.

NSO exercises and state tax in Tennessee

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.

Ordinary income at exercise

NSO spread (FMV minus strike at exercise, times shares) is ordinary wage income in the year of exercise. Tennessee does not tax wages, so the spread costs you only federal (up to 37%) plus Medicare, not state tax. Federal supplemental withholding applies at 22% (or 37%), just like RSUs.

Cash outlay vs tax

NSO exercise requires cash for the strike price plus tax withholding. Cashless exercise (same-day sell) nets out the cash requirement but converts the full spread to ordinary income in the exercise year. Early exercise with 83(b) is available on pre-vesting NSOs at some companies; it starts the long-term capital gain clock on the full share value going forward.

Interaction with later sales

After exercise, your basis equals strike plus spread (the amount taxed as ordinary). Further price appreciation is capital gain on sale, split long-term vs short-term at the one-year mark. For Tennessee residents, this is where the state savings from holding a no-income-tax state matter most.

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.