Work in Tennessee, Live in Kentucky: How Taxes Work

Reciprocity

Do Tennessee and Kentucky Have a Tax Reciprocity Agreement?

No formal reciprocity agreement exists between Tennessee and Kentucky. Kentucky does maintain reciprocity agreements with seven other states: Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, and Wisconsin. Tennessee is not on that list. But the absence of an agreement with Tennessee does not create a practical problem, because Tennessee has no personal income tax on wages.

Tennessee does not have a general income tax. Its Hall tax was levied only on investment income, such as dividends from stocks and interest on bonds, and the 2017 IMPROVE Act phased it out so that it was completely repealed beginning January 1, 2021, according to the Tennessee Comptroller. Federal payroll taxes (Social Security and Medicare) still apply, but no Tennessee state income tax is withheld from your paycheck.

Kentucky taxes its residents on all income from all sources, including wages earned by a resident who commutes to a Tennessee job. The result for commuters along the Kentucky-Tennessee line, for example between southern Kentucky and Clarksville or the Nashville area, is straightforward: Tennessee takes nothing on your wages, and Kentucky taxes the full amount on your Kentucky resident return.

This mirrors other Tennessee border pairings, such as the Tennessee to Mississippi commute, where the home state collects all state income tax and Tennessee's side is zero.

Filing Obligations

Which Tax Return Do I File as a Kentucky Resident Working in Tennessee?

File Kentucky Form 740, the Kentucky Individual Income Tax Return, and include your Tennessee wages in the total. Kentucky residents report income from all sources regardless of where the income was earned. Your Tennessee W-2 wages flow through Kentucky adjusted gross income the same as any Kentucky-source earnings.

You do not file a Tennessee individual income tax return, because Tennessee does not levy one. There is no Tennessee nonresident return, no Tennessee resident return, and no Tennessee withholding to reconcile at the state level.

For tax year 2025, Kentucky taxes income at a flat rate of 4 percent. The standard deduction is $3,270. For tax year 2026, the rate drops to 3.5 percent and the standard deduction rises to $3,360. Kentucky's individual income tax law is based on the Internal Revenue Code in effect as of December 31, 2024. Kentucky's withholding tables use the 3.5 percent rate for 2026.

Kentucky returns are due April 15. The filing deadline for the 2025 return is April 15, 2026.

Employer Withholding

Will My Tennessee Employer Withhold Kentucky State Tax?

Not always. Kentucky law requires employers to withhold Kentucky income tax for both resident and nonresident employees unless exempted by law, but whether that reaches a Tennessee employer with no Kentucky presence is a separate question. In practice, some Tennessee employers set up Kentucky withholding only when asked.

Ask your payroll department whether they can set up Kentucky withholding. If they agree, provide them with a completed Kentucky Form K-4, Kentucky's Withholding Certificate. If they cannot withhold Kentucky tax, you are responsible for paying Kentucky tax directly through estimated payments.

Federal withholding, Social Security, and Medicare are handled by every U.S. employer regardless of state. Only the state tax layer is affected by the Tennessee employer location.

Check your first pay stub after any payroll change. If you see Tennessee state tax withheld, that is an error, since Tennessee has no personal wage income tax. Contact payroll, ask them to correct it, and save the corrected pay stub and updated W-2 for your records.

Estimated Payments

How Do I Avoid a Kentucky Underpayment Penalty?

When your Tennessee employer does not withhold Kentucky tax, you generally owe Kentucky estimated tax payments in four installments during the year. The Kentucky Department of Revenue provides Form 740-ES for estimated payments. Installments are due April 15, June 15, September 15, and January 15 of the following year.

Compute your expected Kentucky tax for the year based on projected wages, subtract any withholding already being collected, then divide the remaining amount into four equal payments. Kentucky's 740-ES instructions say estimated payments are needed if you expect your withholding and refundable credits to be less than the smaller of 90 percent of the tax on your 2026 return or 100 percent of the tax on your 2025 return, and that no payment is required if the estimated tax for the year is $500 or less.

You can make estimated payments electronically through the Kentucky Department of Revenue's online payment portal. Keep confirmation of each estimated payment and reconcile them on your Kentucky Form 740 at filing time.

Credit for Other Taxes

Do I Get a Credit on My Kentucky Return for Tennessee Taxes?

No, because there is no Tennessee income tax on wages to credit. Kentucky's credit for taxes paid to another state applies when a Kentucky resident actually pays income tax to another state on income also taxed by Kentucky. Since Tennessee levies no personal income tax on wages, the credit does not apply to this situation.

If you accidentally had Tennessee state tax withheld, you cannot claim a Kentucky credit for it. Contact your employer's payroll department to stop the incorrect withholding and recover any amount taken.

The other-state credit does apply in reverse situations, such as a Kentucky resident working in a state that taxes wages. Kentucky's seven reciprocal agreements work differently: under them, wages are taxed by the state of residence rather than by the state where they are earned. For a Tennessee commute, the calculation is simpler because the Tennessee side of the ledger is zero for wage income.

Worked Example: Kentucky Resident Earning $65,000 in Tennessee

Single filer, all wages from a Tennessee employer, Kentucky 2026 rate and standard deduction.

Remote Work

What If I Work from Home in Kentucky for a Tennessee Employer?

Working from home in Kentucky does not change your Kentucky state tax outcome. Kentucky already taxes all of your wages as a resident, whether you earn them in a Tennessee office or at your Kentucky home. There is no additional Kentucky state tax from remote work, and Tennessee still has no wage tax to apply either way.

Where remote work can matter is nexus for your Tennessee employer. If a Tennessee employer has Kentucky-based remote workers, the company may take on Kentucky payroll tax registration and withholding responsibilities. That change is helpful for you because it removes the need for estimated payments.

Tennessee does not apply a convenience-of-the-employer rule to nonresidents, since it has no personal wage income tax to enforce. Your Kentucky liability tracks Kentucky residency rules, not where the work is performed. The number of days worked in each state has no effect on your Kentucky state tax total.

Mid-Year Move

What If I Moved Between Tennessee and Kentucky During the Year?

If you moved from Tennessee to Kentucky during the tax year, file Kentucky Form 740-NP, the Nonresident or Part-Year Resident Individual Income Tax Return. Report the wages earned during the months you were a Kentucky resident. Wages earned while you still lived in Tennessee are not subject to Kentucky tax for that period, because Tennessee has no income tax and you were not yet a Kentucky resident.

If you moved from Kentucky to Tennessee during the year, file the same Kentucky Form 740-NP as a part-year resident. Report the wages earned while you were still a Kentucky resident, and stop the Kentucky calculation at your move date. Wages earned after the move face no state tax, because Tennessee does not tax wages.

Document the move date with utility records, lease or closing documents, or your new driver's license issue date. Part-year residents may need to prorate the standard deduction to the resident period.

Local Taxes

Do Kentucky Occupational Taxes Apply to My Tennessee Wages?

Kentucky is one of a few states where cities and counties levy their own occupational license tax on wages. As of January 2025, 87 counties levied an occupational license tax on payroll at rates from 0.50 percent to 2.5 percent. Cities may impose occupational license taxes as well, and city rates are not subject to statutory limits. For more details, see our Kentucky occupational license tax guide.

These taxes are generally based on where the work is performed, not where the worker lives. If you live in Kentucky but perform all work in Tennessee, you generally do not owe Kentucky occupational tax on those Tennessee wages. If your employer withholds local occupational tax on wages earned outside the jurisdiction, you may be able to file for a refund with your local revenue office.

Federal income tax, Social Security (6.2 percent of wages up to the annual wage base), and Medicare (1.45 percent of all wages) apply equally in both states and are handled through federal Form W-4. If a payroll deduction on your Tennessee pay stub is unclear, ask payroll for the specific code and confirm it is not a local tax. For common deduction codes, see our pay stub abbreviations guide.