One bomb exploded on a road at the entrance to the town and the second was triggered as residents rushed to the scene, the sources said.
The blasts also wounded 18 people, including a baby, they added.
Tuz Khurmatu is a majority Kurdish town located in a disputed area of northern Iraq, where both the autonomous Kurdish province and the central government in Baghdad vie for power.
Elsewhere in Iraq four soldiers, including a captain, were killed today in the main northern city of Mosul, police and medics said.
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The Islamic State of Iraq and the Levant said the attacks were retribution for the executions this month of people convicted of terror-related offences.
Iraq has seen a marked rise in the level of violence this year, coinciding with demonstrations by the Sunni Arab minority against alleged ill treatment at the hands of the Shiite-led government and security forces.
More than 600 people have already been killed so far this month, according to an AFP tally.