Tennessee does not tax most retirement income, but the rules depend on what type of income you receive

Tennessee has no state income tax on wages, and that same rule applies to most retirement income. If you receive a pension, 401(k) withdrawal, or IRA distribution, Tennessee will not tax it at the state level. However, military pensions, federal employee pensions, and some other specific sources have different treatment, and you may still owe federal income tax regardless of what Tennessee does.

The key is understanding which retirement accounts and income sources fall under Tennessee's exemption and which do not. A few retirement income types are taxed differently, and knowing the difference affects how much you actually keep.

Key Takeaways

  • Tennessee does not tax traditional IRAs, Roth IRAs, 401(k)s, 403(b)s, or most private pensions at the state level.
  • Military pensions and federal employee pensions are fully exempt from Tennessee state tax, but you still owe federal income tax on them.
  • Social Security benefits are not taxed by Tennessee, though federal tax may explore depending on your total income.
  • You must still file federal income tax returns if your income exceeds the federal threshold, even though Tennessee has no state income tax.

Retirement accounts Tennessee does not tax

If you withdraw money from a traditional IRA, Roth IRA, 401(k), 403(b), or similar employer-sponsored plan, Tennessee will not tax that withdrawal. The same applies to distributions from a SEP-IRA or Solo 401(k). This exemption covers both the contributions you made and the earnings that accumulated inside the account.

Private pensions—money paid by a former employer based on years of service—are also exempt from Tennessee state tax. This includes pensions from corporations, nonprofits, and other private employers. If you receive a lump-sum distribution from a pension plan instead of monthly payments, that lump sum is still not taxed by Tennessee.

Annuities purchased with after-tax money are not taxed by Tennessee either. However, if you bought an annuity with pre-tax money (such as funds rolled over from a 401(k)), only the portion that represents your original contribution is exempt; the earnings portion may be subject to federal tax.

Federal and military pensions get special treatment

Military pensions are fully exempt from Tennessee state tax. This applies whether you retired after 20 years of service or took a medical discharge. The entire monthly payment you receive is protected from Tennessee taxation.

Federal employee pensions—including those from the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS)—are also fully exempt from Tennessee state tax. Veterans receiving VA disability compensation are not taxed by Tennessee on those payments either.

Despite these state exemptions, you will still owe federal income tax on military and federal pensions unless you have no other income and fall below the federal filing threshold. Tennessee's lack of state income tax does not change your federal obligations.

Social Security and how it is taxed

Tennessee does not tax Social Security benefits. If Social Security is your only income, you owe no Tennessee state tax. This applies whether you receive retirement benefits, survivor benefits, or disability benefits.

Federal income tax is a different matter. If your combined income (including half of your Social Security benefits plus other income sources) exceeds certain thresholds, a portion of your Social Security may be subject to federal tax. For 2024, those thresholds are $25,000 for single filers and $32,000 for married couples filing jointly. Tennessee does not participate in this federal taxation, but you must account for it on your federal return.

What you still owe to the federal government

Tennessee's lack of state income tax does not eliminate your federal tax obligation. If you receive retirement income that exceeds the federal filing threshold, you must file a federal return and pay federal income tax on the taxable portion.

For 2024, the federal filing threshold for a single person age 65 or older is $23,200 in gross income. For married couples filing jointly where both are age 65 or older, the threshold is $46,400. These thresholds change each year, so check the IRS website or your tax software for the current year's limits.

Distributions from traditional IRAs and 401(k)s are taxable at the federal level. Roth IRA distributions are generally not taxable if the account has been open for at least five years and you are age 59½ or older. may have access to distributions from a Roth are tax-free at both the state and federal level.

How to report retirement income on your taxes

Since Tennessee has no state income tax, you do not file a Tennessee state return. You only file a federal return if your income exceeds the federal threshold. Retirement income appears on your federal return in different places depending on the source.

IRA and 401(k) distributions are reported on Form 1099-R, which the financial institution holding the account sends to you and the IRS. Social Security benefits appear on Form SSA-1099. Pension payments may come on a 1099-R or a separate pension statement, depending on the plan.

If you have multiple retirement income sources, add them together to determine whether you exceed the federal filing threshold. You may owe federal tax even if no single source exceeds the threshold on its own.

State tax implications if you move to or from Tennessee

If you move to Tennessee from another state after retiring, you generally do not owe that previous state any tax on retirement income you receive after you leave. However, some states tax pensions earned while you worked there, even after you move away. Check with your former state's tax authority if you are unsure.

If you move out of Tennessee, the state where you move to may tax your retirement income. Some states, like Florida and Texas, also have no income tax. Others tax all retirement income, while some offer partial exemptions for pensions or military service. Research your new state's rules before you relocate.

Frequently Asked Questions

Do I have to file a Tennessee tax return if I have retirement income?

No. Tennessee has no state income tax, so you never file a Tennessee return regardless of your income level. You only file a federal return if your income exceeds the federal threshold for your age and filing status.

Is my 401(k) withdrawal taxed by Tennessee?

No. Tennessee does not tax 401(k) distributions. You may owe federal income tax on the withdrawal, but Tennessee will not tax it at the state level.

What about my military pension—is that taxed in Tennessee?

No. Military pensions are fully exempt from Tennessee state tax. You will still owe federal income tax unless your total income falls below the federal filing threshold.

If I have no Tennessee state tax, do I still need to file a federal return?

Only if your income exceeds the federal filing threshold. For a single person age 65 or older in 2024, that threshold is $23,200. Check the IRS website for the current year's threshold that applies to your age and filing status.

Is Social Security taxed in Tennessee?

No. Tennessee does not tax Social Security benefits. Federal tax may explore to a portion of your benefits if your combined income exceeds federal thresholds, but Tennessee has no state tax on Social Security.