Tennessee Income Tax Structure

Tennessee does not tax wages or earned income. As of 2024, Tennessee has fully eliminated its tax on investment income (called the "Hall Income Tax"), which was previously levied on certain dividend and interest income. This means Tennessee residents now pay no state income taxes on any form of income.

Hall Income Tax Phase-Out

Tennessee completed a multi-year phase-out of its Hall Income Tax, which was a tax on investment income, in 2021. This tax previously applied to interest and dividend income at rates that gradually decreased from 6% to 1% during the phase-out period. As of January 1, 2021, this tax was completely eliminated, making Tennessee a true no-income-tax state.

Federal Income Tax

Federal income tax is based on federal tax brackets, your filing status, deductions, and W-4 allowances. Pre-tax deductions like 401(k) or HSA contributions reduce your federal taxable income.

FICA Taxes

FICA taxes fund Social Security and Medicare.

• Social Security: 6.2% on income up to $168,600 for 2024.
• Medicare: 1.45% on all income, with an additional 0.9% on income above certain thresholds.

Other Tennessee Taxes

• Sales Tax: Tennessee compensates for its lack of income tax with one of the highest combined state and local sales tax rates in the country. The state sales tax rate is 7%, and local jurisdictions can add up to 2.75%, potentially bringing the total to 9.75% in some areas.
• Property Tax: Tennessee has relatively low property taxes with an average effective property tax rate of approximately 0.64% of a property's assessed value.
• No Estate or Inheritance Tax: Tennessee does not impose estate or inheritance taxes.

Disclaimer: This information is for general guidance for the 2024 tax year and is not tax advice. Consult a tax professional for personalized advice.