Tennessee Retirement Taxes: Complete Guide for Retirees
No state income tax makes Tennessee attractive, but watch for property taxes and high sales tax. Here's what to expect.
Key Takeaways
- 1Tennessee has NO state income tax on wages, Social Security, pensions, or retirement income
- 2Property taxes vary significantly by county—research your target area carefully
- 3State sales tax is 7% plus local additions, making it one of the highest in the nation
- 4No estate or inheritance tax in Tennessee
- 5Cost of living is 10-15% below national average in most areas
- 6Nashville area has higher costs; rural Tennessee offers significant savings
Tennessee Has No State Income Tax
Tennessee is one of only 8 states with no individual income tax. This means your retirement income is completely tax-free at the state level.
- No tax on Social Security benefits
- No tax on pension income (private or government)
- No tax on 401k or IRA withdrawals
- No tax on investment income or capital gains
- Hall Tax on dividends/interest was eliminated in 2021
| Income Type | Tennessee Tax | National Average Tax |
|---|---|---|
| Social Security | $0 | $500-$2,000/year |
| Pension Income | $0 | $1,000-$5,000/year |
| 401k/IRA Withdrawals | $0 | $2,000-$8,000/year |
| Investment Gains | $0 | $1,000-$3,000/year |
Property Taxes Vary by County
While Tennessee has no income tax, property taxes fund local services. Rates vary significantly by county, so research carefully before choosing where to retire.
- Tax relief programs available for seniors 65+ with income under $31,600
- Property tax freeze available for qualifying seniors
- Disabled veterans may qualify for full exemption
| County | Average Rate | Annual Tax on $300k Home |
|---|---|---|
| Shelby (Memphis) | 1.45% | $4,350 |
| Davidson (Nashville) | 0.91% | $2,730 |
| Knox (Knoxville) | 0.72% | $2,160 |
| Hamilton (Chattanooga) | 0.86% | $2,580 |
| Williamson | 0.51% | $1,530 |
| Sevier (Gatlinburg) | 0.45% | $1,350 |
The High Sales Tax Reality
Tennessee's 7% state sales tax (plus 2-2.75% local taxes) is among the highest in the nation. This affects daily spending significantly.
- Combined rate of 9-9.75% in most areas
- Groceries are taxed at reduced 4% state rate (plus local)
- Prescription drugs are exempt from sales tax
- Big purchases (cars, appliances) cost more than in low-sales-tax states
- No sales tax on services (legal, medical, accounting)
Sales Tax Impact
A retiree spending $40,000/year on taxable goods pays approximately $3,600-$3,900 in sales tax. Factor this into your budget planning.
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Cost of Living Comparison
Despite high sales taxes, Tennessee's overall cost of living is below the national average, making it attractive for retirees.
| Category | Tennessee | National Average | Savings |
|---|---|---|---|
| Overall | 90.2 | 100 | 9.8% |
| Housing | 82.5 | 100 | 17.5% |
| Healthcare | 91.3 | 100 | 8.7% |
| Utilities | 94.6 | 100 | 5.4% |
| Transportation | 88.9 | 100 | 11.1% |
Index: 100 = National Average
Best Tennessee Cities for Retirees
Tennessee offers diverse retirement destinations from vibrant cities to mountain communities.
- Knoxville: University town with excellent healthcare, moderate costs
- Chattanooga: Scenic Riverfront, outdoor activities, revitalized downtown
- Murfreesboro: Nashville suburbs without Nashville prices
- Johnson City: Affordable Appalachian mountain living
- Clarksville: Military-friendly, growing community
- Gatlinburg/Pigeon Forge: Tourism hub with mountain scenery
Consider the Full Picture
No income tax sounds great, but calculate your total tax burden. A retiree in Tennessee with a $300k home spending $40k/year on goods pays about $6,000+ in property and sales taxes. Compare this to your current state's total burden.
Relocating? Protect Your Home Sale Windfall
Selling your home to move to Tennessee often creates a significant cash windfall. After paying off your new home, you may have substantial assets to protect. A Gold IRA can help.
- Tax-advantaged way to invest home sale proceeds
- Physical gold hedges against inflation eating your nest egg
- No state tax on Gold IRA distributions in Tennessee
- Diversification beyond Tennessee real estate and stock market
- Protection from dollar devaluation in retirement
Frequently Asked Questions
1Does Tennessee tax Social Security benefits?
No, Tennessee does not tax Social Security benefits. In fact, Tennessee has no income tax at all, so all retirement income including Social Security, pensions, and IRA/401k withdrawals are state tax-free.
2Is Tennessee a good state to retire in?
Tennessee ranks among the top 10 states for retirement due to no income tax, affordable cost of living, mild climate, and diverse geography. However, high sales tax and variable property taxes mean you should calculate your specific situation.
3Does Tennessee have an estate tax?
No, Tennessee eliminated its estate tax in 2016. There is also no inheritance tax. Your heirs will only pay federal estate taxes if applicable (exemption is $13.61 million in 2024).
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