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Tool | August 2013

State-by-State Guide to Taxes on Retirees

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Tennessee

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The Bottom Line
Map of Tennessee

MIXED TAX PICTURE

The Volunteer State 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 one of the highest combined sales-tax rates in the nation, at an average of 9.44%, according to the Tax Foundation. 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% 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.

Social Security

Social Security 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

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. The tax relief for 2013 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 2012 is not more than $39,540.

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% 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 threshold is $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.

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