Overall Rating for Taxes on Retirees: Tax-friendly
Inheritance and Estate Taxes: There is no inheritance tax or estate tax.
State Sales Tax: 7% state levy. Localities can add up to 2.75%, with an average combined rate of 9.46%, according to the Tax Foundation. Groceries are taxed at 4% by the state, plus whatever local rate is in effect. Local taxes are limited, though: Only the first $1,600 of any item is taxable.
State Income Tax Range: There’s no state income tax, so salaries, wages, Social Security benefits, IRA distributions and pension income are not taxed. But Tennessee does have the Hall Tax, which taxes dividends and some interest at 4% (in 2017). The first $1,250 in taxable income for individuals ($2,500 for joint filers) is exempt. The rate is declining 1% a year and will be phased out entirely by 2021.
State Taxes on Social Security: Benefits are not taxed.
For additional information on property taxes, taxes on other retirement income and tax breaks for retirees see the complete guide to taxes on retirees in Tennessee.
