Tennessee has no state income tax on wages or salaries

Tennessee does not tax the money you earn from a job, a pension, or self-employment income. If you live and work in Tennessee, you will not owe state income tax on your paycheck. This is one of nine states in the U.S. with no wage income tax.

However, Tennessee does tax other types of income. The state has a tax on investment income—specifically dividends and interest—called the Hall Income Tax. This tax applies to money you earn from stocks, bonds, savings accounts, and similar sources. The rate is 5.75 percent, though there are exemptions and thresholds that may reduce or eliminate what you owe.

Key Takeaways

  • Tennessee does not tax wages, salaries, or self-employment income, so most workers pay no state income tax.
  • The Hall Income Tax applies to dividends and interest at a rate of 5.75 percent, with exemptions for certain types of investment income.
  • Sales tax in Tennessee ranges from 7 percent to 9.55 percent depending on your county, and applies to most purchases.
  • Property tax rates vary by county and are based on the assessed value of your home or land.
  • You do not file a state income tax return in Tennessee unless you have investment income subject to the Hall Income Tax.

What the Hall Income Tax covers

The Hall Income Tax applies to dividends (payments from stocks you own), interest (earnings from savings accounts, bonds, and CDs), and certain other investment income. The tax rate is 5.75 percent on these earnings.

Some types of investment income are exempt. These include interest from U.S. Treasury bonds, interest from Tennessee municipal bonds, and certain retirement account distributions. If you receive Social Security benefits, those are not subject to the Hall Income Tax.

The tax applies only to income above a certain threshold. For the 2024 tax year, individuals can exclude up to $1,250 of Hall Income Tax, and married couples filing jointly can exclude up to $2,500. This means many people with modest investment income owe nothing.

Sales tax and what it covers in Tennessee

Tennessee's state sales tax is 7 percent, but your total sales tax rate depends on your county. Counties can add their own local sales tax on top of the state rate, bringing the total to between 7 percent and 9.55 percent. You pay sales tax when you buy most goods and some services.

Groceries and prescription medications are exempt from sales tax in Tennessee. Clothing is also exempt. However, prepared food, restaurant meals, and non-prescription items are taxed at the full rate for your county.

Sales tax is collected by the merchant at the point of sale, so you see it added to your bill. You do not file a separate return for sales tax as a consumer—the business that sold you the item handles the tax reporting.

Property tax rates by county

Tennessee property tax is assessed and collected at the county level, so the rate you pay depends on where your property is located. Rates vary significantly from county to county, ranging from roughly 0.4 percent to 1.6 percent of assessed property value per year.

Your county assessor determines the assessed value of your home or land. This value is not always the same as the market value or the price you paid. The assessor may reassess your property every few years, and the assessed value can change based on improvements you make or market conditions.

If you own a home, your property tax bill is usually due once or twice a year, depending on your county. Some counties allow you to pay in installments. If you have a mortgage, your lender may collect property tax as part of your monthly payment and pay it on your behalf.

Who files a Tennessee state tax return

Most Tennessee workers do not file a state income tax return because the state has no wage tax. However, if you have income subject to the Hall Income Tax—dividends, interest, or other investment income—you may need to file a return with the Tennessee Department of Revenue.

You are required to file if your Hall Income Tax liability exceeds your exemption amount. For example, if you are single and earned $1,500 in dividends, you would owe tax on $250 of that income ($1,500 minus the $1,250 exemption). If your tax liability is small, you may still choose to file to report your income accurately.

The Tennessee Department of Revenue provides forms and instructions on its website. You can file by mail or electronically. If you use a tax preparer or software, make sure they are set up to handle Tennessee's Hall Income Tax, as not all tax software includes it.

Other Tennessee taxes you may encounter

Tennessee has several other taxes that explore in specific situations. The state collects an excise tax on gasoline and diesel fuel, which is included in the price you pay at the pump. There is also an excise tax on cigarettes and other tobacco products.

If you own a vehicle, you pay a registration fee to the state, though this is not technically a tax. Some counties also charge a local wheel tax on vehicles, which varies by location.

Businesses in Tennessee pay a franchise and excise tax based on their net income, but this does not affect individual workers. If you are self-employed, you do not owe Tennessee state income tax on your business earnings, though you will still owe federal self-employment tax.

How to find your county's specific tax rates

Because sales tax and property tax vary by county, you need to know your specific location to find your exact rates. The Tennessee Department of Revenue website lists the current sales tax rate for each county. You can search by county name to find the combined state and local rate.

For property tax, contact your county assessor's office directly. They can tell you the tax rate for your county and explain how your property is assessed. Most counties have websites with this information, or you can call the assessor's office during business hours.

If you are moving to Tennessee or buying property there, it is worth checking these rates in advance. A difference of even one percent in property tax can add up significantly over time, and sales tax rates affect your everyday purchases.

Frequently Asked Questions

Do I have to file a Tennessee state tax return if I only have wage income?

No. Tennessee does not tax wages or salaries, so if your only income is from a job, you do not file a state return. You will still file a federal return if you meet the federal income threshold.

What counts as investment income under the Hall Income Tax?

Dividends from stocks, interest from savings accounts and bonds, and capital gains from selling investments are the main types. Social Security, retirement account distributions, and U.S. Treasury interest are exempt. Check the Tennessee Department of Revenue website for a complete list.

Is my county's sales tax rate the same everywhere in the county?

Yes, the combined state and local sales tax rate is the same throughout the county. However, some cities or special districts within a county may have additional local taxes on specific items, so rates can vary slightly by location within a county.

Can I deduct property tax from my federal income tax return?

Yes, if you itemize deductions on your federal return, you can deduct state and local property taxes, including Tennessee property tax. However, the total deduction for all state and local taxes combined is capped at $10,000 per year under current federal law.

What happens if I owe Hall Income Tax but do not file a return?

The Tennessee Department of Revenue may assess a penalty and interest on unpaid taxes. If you believe you owe Hall Income Tax, contact the department or a tax professional to file and pay what you owe. Filing voluntarily is better than waiting for the state to contact you.