TENNESSEE
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The Volunteer State
BOTTOM LINE: MIXED TAX PICTURE
Tennessee has no broad-based income tax, though the state does levy a 6% tax on stock dividends and interest income from bonds and other investments. But be prepared to fork over some substantial sales taxes in Tennessee. It has some of the highest sales-tax rates in the U.S., reaching 9.75% in some locations. Real estate is assessed at 25% of market value, and there are some property-tax relief programs.
STATE SALES TAX
7% on tangible property (prescription drugs are exempt); 5.25% on food and food ingredients. Counties and cities may add another 1.5% to 2.75% to the total of 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.
SOCIAL SECURITY
Social Security benefits are not taxed.
EXEMPTIONS FOR OTHER RETIREMENT INCOME
Starting in 2012, taxpayers older than 65 with total annual income of $26,200 or less ($37,000 for joint filers) are exempt from the tax on dividends and interest.
PROPERTY TAXES
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 rate.
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. The tax relief for 2012 is calculated based on up to $25,000 of the appraised fair market value of the homeowner's residence if the owner’s combined income for 2011 is not more than $26,830.
INHERITANCE AND ESTATE TAXES
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% of the value of the property transferred at death for estates over $1 million. Spouses are exempt. Legislation passed in May 2012 will phase out the inheritance tax as of January 1, 2016. The inheritance tax exemption threshold will increase to $1.25 million in 2013, $2 million in 2014, and $5 million in 2015. The legislature has also repealed the state gift tax retroactive to January 1, 2012.
Visit RetirementLiving.com for a complete rundown of taxes in Tennessee.
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