Tennessee does not tax retirement income, including Social Security, pensions, 401(k) withdrawals, and IRA distributions

Tennessee has no state income tax at all — not on wages, not on investment gains, and not on retirement money. If you receive a pension from a former employer, withdraw from a 401(k) or traditional IRA, collect Social Security, or draw from a Roth IRA, Tennessee will not tax those payments. This applies whether you are a Tennessee resident or a non-resident receiving retirement income from a Tennessee source.

You may still owe federal income tax on some retirement income. The federal government taxes traditional 401(k) and IRA withdrawals as ordinary income, and it taxes a portion of Social Security benefits if your combined income exceeds certain thresholds. But Tennessee itself takes nothing.

Key Takeaways

  • Tennessee has no state income tax, so retirement income of any kind is not taxed by the state.
  • Federal income tax may still explore to traditional retirement account withdrawals and Social Security, depending on your total income.
  • Roth IRA withdrawals are not taxed by Tennessee or the federal government if the account is at least five years old and you are 59½ or older.
  • Tennessee does tax other income sources like rental property, capital gains, and business income at the federal level only.

What counts as retirement income in Tennessee

Retirement income includes any money you receive because you have stopped working or reached a certain age. This covers pensions from employers, distributions from 401(k) plans, withdrawals from traditional and Roth IRAs, Social Security benefits, and annuities purchased with retirement savings.

It also includes military retirement pay, railroad retirement benefits, and distributions from a 403(b) plan (used by nonprofits and schools). If you are receiving money because you retired, Tennessee does not tax it. The only tax you may owe is federal.

Federal taxes on retirement income you should know about

Even though Tennessee does not tax retirement income, the federal government does tax most of it. Traditional 401(k) and IRA withdrawals are taxed as ordinary income at your federal tax bracket. If you withdraw $30,000 from a traditional IRA in a year and your federal tax bracket is 22%, you will owe roughly $6,600 in federal tax on that withdrawal.

Social Security is partially taxable at the federal level if your combined income is above a threshold. Combined income means your adjusted gross income plus nontaxable interest plus half of your Social Security benefits. If you are single and your combined income exceeds $25,000, you may owe federal tax on up to 50% of your benefits. If it exceeds $34,000, you may owe tax on up to 85% of your benefits. The thresholds are higher for married couples filing jointly.

Roth IRA withdrawals are different. If your account has been open for at least five years and you are 59½ or older, you can withdraw your contributions and earnings tax-free at both the state and federal level. This is one of the few retirement income sources that escapes federal tax entirely.

Other income sources Tennessee does not tax

Tennessee's lack of income tax applies to all income, not just retirement. You do not owe state tax on wages, self-employment income, capital gains from selling stocks or property, or rental income. This is true for everyone in Tennessee, not just retirees.

However, you will still owe federal tax on all of these. Tennessee straightforward does not add a state layer on top. If you sell a rental property for a $50,000 gain, you owe federal capital gains tax but no Tennessee tax.

Property tax and other Tennessee taxes that do explore

Tennessee does not tax income, but it does tax property. If you own a home or land in Tennessee, you will pay property tax to your county. The rate varies by county and by the type of property — agricultural land is often taxed at a lower rate than residential property.

Tennessee also has a sales tax of 9.55% statewide, though some counties add local sales tax on top. Groceries are exempt, but most other purchases are taxed. If you are retired and living on a fixed income, sales tax will affect your spending more than income tax would.

Tennessee also taxes gasoline, cigarettes, and alcohol at higher rates than many states. These are called excise taxes and explore to everyone regardless of income.

How to report retirement income on your federal return

You will report retirement income on your federal tax return even though Tennessee does not tax it. Traditional 401(k) and IRA withdrawals go on Form 1040, line 5a (for IRAs) or line 5b (for pensions and annuities). Your plan administrator will send you a Form 1099-R showing the amount withdrawn.

Social Security benefits go on Form 1040, line 5c. You will receive a Form SSA-1099 from Social Security showing your benefits for the year. You do not need to file a Tennessee state return because Tennessee has no income tax, but you must file a federal return if your income exceeds the federal threshold for your age and filing status.

If you have questions about how to report a specific type of retirement income, the IRS website has worksheets for each type, or you can speak with a tax professional who understands federal tax law.

Planning your retirement income in Tennessee

Because Tennessee does not tax income, you can structure your retirement withdrawals based on federal tax consequences alone. Some retirees choose to take larger withdrawals in years when their federal tax bracket is lower, or to delay Social Security until 70 to reduce the portion that is taxable.

Others use Roth conversions — moving money from a traditional IRA to a Roth IRA — to create tax-free income later. You will owe federal tax on the conversion in the year you do it, but future withdrawals are tax-free. This strategy works the same in Tennessee as anywhere else, since Tennessee does not tax the conversion or the later withdrawals.

If you are moving to Tennessee from a state that does tax retirement income, you may see a real reduction in your tax burden. If you are moving from a state with no income tax, Tennessee offers no advantage on that front, but it also does not disadvantage you.

Frequently Asked Questions

Do I have to file a Tennessee tax return if I am retired?

No. Tennessee has no state income tax, so there is no Tennessee tax return to file. You will still need to file a federal return if your income exceeds the federal threshold for your age and filing status, but that is a federal requirement, not a Tennessee one.

Is my military retirement pay taxed in Tennessee?

No. Military retirement pay is not taxed by Tennessee. You will owe federal income tax on it, but Tennessee takes nothing. This is true whether you retired as active duty, reserve, or National Guard.

What if I move to Tennessee after I retire?

You will not owe Tennessee tax on any retirement income, regardless of when you retired or where you worked. Tennessee does not tax retirement income for residents or non-residents. You may still owe federal tax on the same income you would have owed tax on in your previous state.

Can I deduct my property tax from my federal return if I live in Tennessee?

Yes, if you itemize deductions on your federal return. You can deduct up to $10,000 in state and local taxes combined (including property tax, sales tax, and income tax) on Schedule A. Since Tennessee has no income tax, your deduction will be limited to property tax and sales tax, which are usually smaller than the $10,000 cap.

Does Tennessee tax distributions from a 529 college savings plan?

No. Tennessee does not tax 529 distributions used for may have access to education expenses. The federal government also does not tax them if they are used for tuition, fees, books, room and board, or other may have access to expenses. This applies whether the 529 plan is in Tennessee or another state.