Navigating the complexities of state taxes can be daunting, but understanding Tennessee's tax landscape is essential for residents and newcomers alike.
In this guide, we'll explore key components of The Volunteer State's tax system, from income and sales taxes to property taxes and retirement benefits.
Tennessee state tax: Overview
Tennessee has its pros and cons when it comes to taxes.
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The state's sales tax is one of the highest in the United States, but some other advantages balance that out.
For example, there’s no state income tax at all in the Volunteer State, property taxes are on the lower side compared to other states, and the overall cost of living tends to be relatively affordable.
[Data for this state tax guide was gathered from a number of sources including the Census Bureau, the state’s government website, and the Sales Tax Handbook. Property taxes are cited as a rate percentage rather than the assessed value.]
Tennessee income tax
There is no income tax in Tennessee. The state previously taxed income earned from stocks and bonds, but this tax was repealed in 2021.
Tennessee retirement taxes
Tennessee is another state with no income tax, so there is no state tax liability on your retirement income.
- Tax on Taxable Income: N/A
- Social Security: Not taxable
- Pensions: Not taxable
- 401(k) and IRA Distributions: Not taxable
Tennessee sales tax
Tennessee has a 7% statewide sales tax. There's also an additional state tax of 2.75% on sales of single items that applies to the portion of the sales price from $1,600 to $3,200. Localities can add up to 2.75%, with an average combined state and local rate of 9.56%, according to the Tax Foundation.
- Groceries: Taxable
- Clothing: Taxable
- Prescription drugs: Taxable
- Motor Vehicles: Taxable
How much are property taxes in Tennessee?
Tennessee's property tax rate is below the national average.
The average effective property tax rate in Tennessee is 0.49%, according to the Tax Foundation.
Tennessee Property Tax Breaks for Retirees
Property Tax Relief Program: Tennessee has a property tax relief program that reimburses income-eligible adults age 65 or older for taxes paid on their primary residence.
Note: Veterans with disabilities and their surviving spouses (of any age) might also qualify for the Tennessee property tax relief program.
Property Tax Freeze: There's also a property tax freeze program available for eligible Tennessee residents. If approved, homeowners can have their tax-assessed value frozen, preventing tax increases in following years. Homeowners must meet specific criteria to qualify.
- Age 65 or older by the end of the tax year in which the application is filed
- Own the primary residence in a participating Tennessee county or city
- Income must not exceed county limits. (Income limits can change each year.)
Tennessee gas tax
Gasoline: $0.20 per gallon.
Diesel: $0.17 per gallon.
Source: Sales Tax Handbook
Tennessee taxes on alchohol and tobacco
Product | Tax Amount |
|---|---|
Cigarette | $0.62 per pack |
Other Tobacco Products | 6.60% of wholesale price |
Source: Sales Tax Handbook
Product | Tax Amount |
|---|---|
Wine | $1.21 per gallon |
Beer | $1.29 per gallon |
Liquor | $4.40 per gallon |
Source: Sales Tax Handbook
Tennessee estate and inheritance taxes
There is no estate tax or inheritance tax in Tennessee.
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