Tennessee Retirement Income Tax Guide 2026

Tennessee is one of only nine states with no state personal income tax, and unlike some of its peers it has no asterisk attached: the Hall Tax, a legacy state tax that applied only to interest and dividend income, was fully repealed effective January 1, 2021. That makes Tennessee simpler than states like New Hampshire, which is still phasing out a similar tax. For retirees, the practical result is that Social Security benefits, pension payments, 401(k) and IRA withdrawals, annuity income, and investment income (dividends, interest, capital gains) are all completely free of Tennessee state tax — there is no bracket, no exclusion cap, and no state return to file.

This has fueled a steady wave of retirees relocating to Nashville and Memphis, along with the Smoky Mountains foothill towns in between, from higher-tax states in the Northeast and Midwest. But "no income tax" does not mean "no taxes." Tennessee leans on a high combined sales tax to fund state and local government, and that shows up in everyday spending in a way income tax never would. Use our Retirement Income Tax by State Calculator to see exactly how Tennessee compares to your current state across all of your retirement income sources.

Does Tennessee Tax Retirement Income?

No. Tennessee has no state personal income tax of any kind, so it cannot tax retirement income — there is nothing to file, withhold, or exclude. This wasn't always the case in one narrow respect: until 2021, Tennessee levied the Hall Tax, a standalone state tax on interest and dividend income (not wages, and not pension or Social Security income). The Hall Tax rate was phased down in 1-point increments from 6% starting in 2016, reaching 1% in 2020, and the Tennessee Department of Revenue confirms it was fully repealed effective for tax years beginning January 1, 2021.

Since that date, Tennessee has had zero state tax on every category of retirement income: Social Security benefits, government and private pensions, traditional 401(k) and IRA withdrawals, Roth account distributions, annuity payments, and investment income from dividends, interest, and capital gains. There is no retirement income exclusion to calculate because there is no tax to exclude it from — this is a meaningfully simpler system than states like Illinois or Pennsylvania, which exempt retirement income but still require a state return.

What Does Tennessee Tax Instead? Sales Tax and Property Tax

Tennessee funds state and local government primarily through sales tax, which means retirees who spend a large share of their income on everyday purchases will feel it more than the "0% income tax" headline suggests.

Sales Tax

Tennessee's state sales tax rate is 7% — one of the highest state-level rates in the country. Local governments add their own rate on top, and according to the Tax Foundation's 2026 data, the average combined state and local sales tax rate in Tennessee is approximately 9.61%, placing it among the two or three highest combined rates of any state (only Louisiana ranks higher). Groceries are taxed at a reduced 4% state rate rather than the full 7%, but local sales tax still applies on top of that reduced rate. Prescription drugs are exempt.

Property Tax

Property tax tells the opposite story. The Tax Foundation puts Tennessee's effective property tax rate on owner-occupied housing at approximately 0.52% of market value — well below the national average (roughly 1.0%–1.1%) and one of the lower rates in the Southeast. Rates vary by county: urban counties like Shelby (Memphis) and Davidson (Nashville) run somewhat higher than rural counties, but even at the higher end Tennessee property tax bills are modest compared to no-income-tax peers like Texas or New Hampshire.

Franchise & Excise Tax (Business Owners)

Retirees who still hold an interest in a pass-through business (LLC, S-corp) should be aware Tennessee levies a Franchise and Excise Tax at the entity level — a 6.5% excise tax on net income and a small franchise tax on net worth. This is a business tax, not a personal income tax, and doesn't touch Social Security, pensions, or personal investment accounts.

Worked Example: Tennessee vs. a High-Tax State

Consider a retired couple with $110,000/year in combined income: $40,000 Social Security, $45,000 pension, and $25,000 in 401(k)/IRA withdrawals.

These figures are illustrative estimates based on published 2026 brackets and standard deductions for each state and are not a substitute for running your own numbers. The Tennessee savings scale up directly with income, since Tennessee has no cap or bracket — a retiree with $250,000 in pension and investment income saves proportionally more than one with $60,000, because states with progressive brackets or partial exemptions tax the marginal dollars at their highest rate. On the other side of the ledger, a Tennessee retiree spending $50,000/year on taxable purchases pays roughly $4,800 in sales tax (at 9.61%) — a cost that a state like Oregon (no sales tax) or a state with grocery-only exemptions doesn't impose. Run your own numbers with the Retirement Income Tax by State Calculator.

Who Benefits Most From Tennessee's Tax Structure?

Because Tennessee has no exclusion caps or income thresholds, the retirees who gain the most are the ones with the highest and most tax-exposed income in other states:

• High-pension retirees — a $150,000/year government or corporate pension is taxed at $0 in Tennessee versus potentially $8,000–$15,000+ in a state like California, Minnesota, or Vermont. States with capped exemptions (e.g., a $20,000 or $65,000 pension exclusion) still tax the excess above the cap; Tennessee doesn't have a cap because it doesn't have a tax.
• Retirees living off investment income — dividends, interest, and capital gains are fully untaxed since the Hall Tax repeal in 2021. A retiree drawing $80,000/year from a taxable brokerage account pays $0 Tennessee tax on it, a meaningful advantage over states that tax capital gains as ordinary income.
• Retirees with mixed, high-total income — because there's no combined-income threshold that phases out benefits (unlike the federal Social Security taxation formula), a Tennessee retiree with $200,000+ in total income owes exactly as little state tax as one with $40,000: zero.

Retirees who benefit least are those who spend a very high share of a modest fixed income on taxable purchases — the ~9.61% combined sales tax is regressive relative to a low, largely non-taxable income, and states with no sales tax (Oregon, Montana, Delaware, New Hampshire) may partially offset their income tax by comparison for that narrow group.

How Does Tennessee Compare to Florida and Texas?

Tennessee, Florida, and Texas are the three most-searched no-income-tax retirement destinations. Here's how they stack up on the factors that matter most to retirees:

All three states are functionally equal on income tax — the real differentiator for retirees is the property-tax/sales-tax mix. Tennessee has the lowest property tax of the three but the highest sales tax; Texas has the highest property tax but a moderate sales tax; Florida sits in between on both. A homeowner with a modest fixed income and low spending will generally do best in Tennessee; a renter or a retiree who spends heavily on taxable goods may do slightly better in Florida or Texas.