Tool | September 2014
State-by-State Guide to Taxes on Retirees
State Sales Tax
7% on tangible property (prescription drugs are exempt); 5% on food and food ingredients. Prepared food, dietary supplements, candy, alcoholic beverages and tobacco are taxed at 7%. Counties and cities may add another 1.5% to 2.75% to either rate.
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 tax dividends and interest at 6%. The first $1,250 in taxable income for individuals ($2,500 for joint filers) is exempt.
Benefits are not taxed.
Exemptions for Other Retirement Income
As of 2013, taxpayers older than 65 with total annual income of $33,000 or less ($59,000 for joint filers) are exempt from the tax on dividends and interest.
Property taxes are assessed and collected by the local governments. The county commission and city governing bodies determine local property tax rates.
The assessed value of a property is based on 25% of its fair market value. Depending on the location of the residence, homeowners are subject to property taxes from the city only; the city and county; or the city, county and a special school/fire district.
Median property tax on the state's median home value of $137,300 is $933, according to the Tax Foundation.
Tax breaks for seniors: Tennessee does not have a homestead exemption. However, there is a property tax relief program to reimburse income-eligible seniors age 65 or older, the disabled and veterans for taxes paid on their primary residence. For tax year 2014, for eligible elderly and disabled homeowners, property tax relief applies to the first $25,000 of market value; the combined income for 2013 for all eligible owners is limited to $28,270. Qualified disabled veterans or widows of disabled veterans may receive property tax relief on the first $175,000 of market value with no income limit.
There is also a property tax freeze program available for homeowners 65 and older; seniors’ income must not exceed income limits of their county to qualify.
Tennessee's estate tax (which the state calls an inheritance tax, but which actually taxes property instead of heirs) ranges from 5.5% to 9.5% based on the amount of the value of the property that exceeds the annual exemption. Spouses are exempt. Legislation passed in 2012 will phase out the inheritance tax as of January 1, 2016. The inheritance tax exemption is $2 million in 2014 and $5 million in 2015. The legislature has also repealed the state gift tax retroactive to January 1, 2012.
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