Tennessee Tax Guide: No State Income Tax

Tax Overview

Tennessee fully eliminated its income tax in 2021 when the Hall Tax on interest and dividend income was phased out. The state now has no tax on any form of personal income, including wages, investment income, and retirement distributions. This makes Tennessee one of the most attractive states for workers, investors, and retirees looking to minimize their tax burden. The absence of income tax has been a major driver of migration to Tennessee from high-tax states.

The trade-off for no income tax is one of the highest combined sales tax rates in the country. Tennessee's state rate of 7% is the highest state-level sales tax in the nation, and local additions push the combined rate to an average of about 9.55%. The state taxes groceries at a reduced rate of 4% (state portion), but the high overall sales tax rate is a significant burden for consumers.

Property taxes in Tennessee are among the lowest in the nation, with effective rates around 0.62%. The state offers a property tax relief program for seniors age 65+ and disabled homeowners, as well as a veteran property tax exemption. The combination of no income tax and low property taxes, despite high sales taxes, gives Tennessee one of the lower overall tax burdens in the country.