Tax in Tennessee: a complete guide
From income and sales tax to how much property tax you’ll need to pay, this guide tells you everything you need to know about tax in Tennessee.
Summary
Tennessee is one of nine states that does not impose state income tax.
Tennessee has a high statewide sales tax rate of 7%.
Tennessee is often considered a retirement-friendly state due to its lack of income tax rates and low cost of living.
A financial advisor can review your income sources and develop a unique tax strategy just for you.
What is Tennessee’s tax liability?
Tennessee is an interesting tax when it comes to your tax liability.
While the state is one of only nine in the US not to impose state income tax, however, residents of Tennessee still have to pay federal income tax by the April 15 filing deadline.
The state makes up for its lack of state income tax by charging higher tax rates in other areas, such as a higher-than-average sales tax rate – standing at 7%.
Tennessee state income tax
Tennessee is one of nine states in the US that does not levy a state income tax.
Also included are Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Washington, and Wyoming.
However, for those living and working in Tennessee, the lack of state income tax doesn’t mean they pay no taxes on their income.
While you won’t pay income tax in Tennessee, there are still other taxes you will need to file. When it comes to managing your tax liability and reducing your tax burden, a financial advisor can help you develop the right tax strategies to reach your goals.
Unbiased can connect you with a regulated financial advisor who can create a personalized tax plan. Connect with your advisor now.
Does Tennessee have federal income tax?
Like every other US citizen, they have to pay federal taxes.
In 2023, seven different federal income tax brackets dictate how much you’ll owe each tax year.
For single filers, these include:
| Income bracket | Tax owed |
|---|---|
| Income bracket | Tax owed |
| $0 - $11,000 | 10% of taxable income |
| $11,001 – $44,725 | $1,100 plus 12% of the excess over $11,000 |
| $44,726 - $95,375 | $5,147 plus 22% of the excess over $44,725 |
| $95,376 - $182,100 | $16,290 plus 24% of the excess $95,375 |
| $182,101 - $231,250 | $37,104 plus 32% of the excess over $182,100 |
| $231,251 - $578,125 | $52,832 plus 35% of the excess over $231,250 |
| $578,126 and over | $174,238.25 plus 37% of the excess over $578,125 |
For people who are married and filing jointly, these include:
| Income bracket | Tax owed |
|---|---|
| Income bracket | Tax owed |
| $0 - $22,000 | 10% of taxable income |
| $22,001 – $89,450 | $2,200 plus 12% of the excess over $22,000 |
| $89,451 - $190,750 | $10,294 plus 22% of the excess over $89,450 |
| $190,751 - $364,200 | $32,580 plus 24% of the excess $190,750 |
| $364,201 - $462,500 | $74,208 plus 32% of the excess over $364,200 |
| $462,501 - $693,750 | $105,664 plus 35% of the excess over $462,500 |
| $693,751 and over | $186,601.50 plus 37% of the excess over $693,750 |
What is the Tennessee corporate income tax rate?
Tennessee also has a flat corporate income tax rate of 6.50%.
If you’re unsure about filing your taxes, a financial advisor can help. Here, they can review your income sources and develop a unique tax strategy just for you.
What is sales tax in Tennessee?
Tennessee has a statewide sales tax rate of 7%.
However, local counties and municipalities can also add their own rates on top of this.
The maximum additional rate is 2.75%, bringing Tennessee's maximum sales tax amount to 9.75%. The average, however, usually falls around 9.55%.
Certain items are also exempt from sales and use tax, including:
Several healthcare products
School meals
Specific organizations also do not need to pay sales tax. These include government agencies, some nonprofit organizations, and organizations purchasing goods for resale.
When is tax-free weekend in Tennessee?
Tennessee also holds annual tax holidays.
To coincide with the beginning of the new school year, Tennessee had its traditional sales tax holiday on clothing, school supplies and computers during the last full weekend in July.
For 2023, Tennessee's General Assembly approved a three-month grocery tax holiday on food & food ingredients, which began at 12:01 a.m. on Tuesday, August 1, 2023, and ended at 11:59 p.m. on Tuesday, October 31, 2023.
It's unclear if this will happen again in 2024.
How much is property tax in Tennessee?
According to data from the U.S. Census Bureau, the average American household spends $2,690 on real estate property taxes, with the national average around 1.07%.
Based on data from 2022, Tennessee’s average effective property tax rate was 0.71%. This meant residents paid, on average, $1,548 in property taxes.
Like many other states, property tax in Tennessee is collected at a local level. County assessors appraise real estate for assessment purposes and assess tax liability. The county commission and city governing bodies determine local property tax rates, which county trustees and city collecting officials then collect.
How much is motor tax in Tennessee?
When buying a vehicle in Tennessee, you must be aware of the tax you must pay.
Tennessee’s state sales tax applies when purchasing a vehicle, meaning you must pay 7% sales tax. Tennessee cities and counties can charge a local sales tax of up to 2.75% on the first $1,600 of a car's total purchase price.
Fuel tax also needs to be taken into consideration. In Tennessee, expect to be charged:
$0.26 per gallon of gasoline
$0.27 per gallon of diesel
Does Tennessee have estate tax?
Tennessee does not have an estate tax or inheritance tax.
However, it’s important to remember federal estate tax can still apply if your estate is above a certain threshold ($12.92 million in 2023); otherwise, there will be no fees on the estate or inheritance you leave behind.
Also, if you live in Tennessee but inherit an estate from someone living in a state with estate tax, you must abide by local regulations.
Does Tennessee tax retirement income?
Due to its lack of state income taxes, Tennessee is seen as a retirement-friendly state.
Your retirement income from your 401(k), IRA, or Social Security will not be taxed here.
The state also has a lower cost of living than elsewhere in the US, meaning your reduced retirement income will go further.
You can also pass on your estate safe in the knowledge that the state will not impose inheritance or estate taxes on your beneficiaries.
Get expert financial advice
For further tax guidance and to ensure you’re not paying more tax than you need to, it’s wise to speak to an expert.
A financial advisor can help you handle all your tax queries and ensure you’re not paying more tax than needed.
Frequently asked questions
Senior Content Writer
Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.