Tennessee Income Tax Calculator 2026

No, Tennessee does not have a state income tax on wages. The Volunteer State is one of nine states in the United States that does not impose a broad-based individual income tax on earned income. If you live and work in Tennessee, you pay zero dollars in state income tax on your wages — no state income tax is withheld from your paycheck, and you do not file a state income tax return for wage income.

What makes Tennessee's story unique among no-income-tax states is the Hall income tax — a tax on interest and dividend income that existed for nearly 90 years before being fully repealed in 2021. For decades, Tennessee was a partial-no-tax state: no tax on wages, but a tax on investment income. Today, Tennessee is a true no-income-tax state with no individual income tax of any kind.

The Nine No-Income-Tax States

Tennessee is part of a group of nine states that do not levy a broad-based individual income tax on wages. These states are:

• Alaska — no income tax, funded primarily by oil revenues
• Florida — no income tax, funded by sales tax, property tax, and tourism
• Nevada — no income tax, funded heavily by gaming and tourism
• New Hampshire — no tax on wages; taxes interest and dividends (being phased out)
• South Dakota — no income tax, funded by sales tax and other revenue sources
• Tennessee — no tax on wages; Hall tax on interest/dividends fully repealed in 2021
• Texas — no income tax, funded by sales tax, property tax, and oil/gas
• Washington — no income tax on wages; has a capital gains tax on high earners
• Wyoming — no income tax, funded primarily by mineral and energy revenues

What No Income Tax Means for You

Living in a no-income-tax state means more money in your pocket from every paycheck. Instead of seeing a state income tax deduction on your pay stub, you only see federal income tax, FICA (Social Security and Medicare), and any pre-tax deductions like health insurance or retirement contributions.

For Tennessee, the benefit extends beyond just wages. Because the Hall tax was fully repealed in 2021, Tennessee residents also pay no state tax on interest, dividends, or other investment income. This makes Tennessee particularly attractive for retirees, who often rely on investment income and retirement account withdrawals. In Tennessee, all of this income is tax-free at the state level.

Why Tennessee Has No Wage Income Tax

Tennessee has never had a broad-based personal income tax on wages. The state's political culture has historically favored limited government and low taxes, and Tennessee has traditionally funded its operations through alternative revenue sources:

• Sales tax: Tennessee's 7% state sales tax is one of the highest in the nation
• Property tax: Local property taxes fund schools, county services, and municipal services
• Franchise and excise tax: A tax on business entities doing business in Tennessee
• Excise taxes: Taxes on fuel, tobacco, alcohol, and other goods
• Various fees and licenses: Driver licenses, vehicle registrations, business licenses, and more

Tennessee's model relies on a high sales tax to replace the revenue that would otherwise come from an income tax. This trade-off has implications for fairness — sales taxes are generally regressive, meaning lower-income households pay a larger share of their income in sales tax than higher-income households. But for higher-income earners and retirees, the system is very favorable.

While Tennessee has no state income tax on wages or investment income, it is not a tax-free state. Tennessee residents pay a variety of other taxes at the state and local level, and some of these taxes are quite high. The overall tax burden depends on your income level, how much you spend, and whether you own property.

Sales Tax

Tennessee's state sales tax rate is 7% — one of the highest state sales tax rates in the country. On top of the state rate, most Tennessee counties and cities impose local option sales taxes. The local rates vary by jurisdiction, and the maximum combined state and local rate is 9.75%.

The average combined sales tax rate across Tennessee is approximately 9.5%, which is among the highest in the United States. This high sales tax is the primary trade-off for having no income tax — it is how the state funds its operations.

Groceries are taxed at a reduced rate of 4% in Tennessee, which is lower than the general sales tax rate but still higher than the many states that fully exempt groceries. Prescription drugs and certain medical devices are exempt from sales tax. There are also occasional sales tax holidays for items like clothing and school supplies.

Property Tax

Property tax is a major source of revenue for Tennessee local governments and school districts. The average effective property tax rate across Tennessee is approximately 0.66%of a home's assessed value, which is below the national average and significantly lower than many other states. This means the owner of a $250,000 home would pay roughly $1,650.00 per year in property taxes.

Property tax rates vary by county and by the type of taxing district. Tennessee has relatively low property taxes compared to many other states, which is one of the advantages that helps offset the high sales tax. For homeowners, the combination of no income tax and below-average property taxes can make Tennessee a very affordable place to live.

Gas Tax and Other Excise Taxes

Tennessee imposes various excise taxes on specific goods. The state's gas tax includes both a state fuel tax and various additional fees. Tennessee also has relatively high cigarette taxes compared to some neighboring states, as well as taxes on alcohol and other products.

• Gas tax: State fuel tax plus additional fees per gallon
• Cigarette tax: One of the higher rates in the Southeast
• Alcohol tax: Taxes on beer, wine, and spirits at varying rates
• Business taxes: Franchise and excise tax on business entities

No Inheritance or Estate Tax

Tennessee does not have an inheritance tax or an estate tax. This is another advantage for retirees and high-net-worth individuals who want to pass on their wealth to their heirs. Combined with the lack of an income tax on both wages and investment income, this makes Tennessee one of the most tax-friendly states for retirees and estate planning.

The Hall income tax was a unique feature of Tennessee's tax system for nearly 90 years. It was not a traditional income tax — it applied only to interest and dividend income, not to wages, salaries, or business income. The tax was gradually phased out and fully eliminated on January 1, 2021, making Tennessee a true no-income-tax state.

What Was the Hall Tax?

The Hall income tax was enacted in 1929 and was named after Frank Hall, the state senator who sponsored the original legislation. The tax applied to interest and dividend income received by Tennessee residents. For most of its history, the rate was 6%, and it applied to interest and dividend income above a certain exemption threshold.

The Hall tax was unusual in that it was a flat-rate tax on investment income only. Wages, salaries, business income, rental income, and other types of income were never subject to the tax. This made Tennessee's system unique — a sort of hybrid between a no-income-tax state and a traditional income tax state.

The Phase-Out

In 2017, the Tennessee General Assembly passed legislation to gradually phase out the Hall income tax. The phase-out was designed to reduce the rate by one percentage point per year until the tax was completely eliminated:

The final repeal of the Hall tax on January 1, 2021, completed Tennessee's transition to a completely no-income-tax state. Today, Tennessee residents pay no state income tax on any type of personal income — wages, interest, dividends, capital gains, retirement distributions, or any other form of personal income.

Why the Hall Tax Was Repealed

The repeal of the Hall tax was driven by several factors. First, proponents argued that eliminating the tax would make Tennessee more competitive with other no-income-tax states and attract retirees and investors. At the time, Florida and Texas had no income tax at all, while Tennessee's Hall tax put it at a slight disadvantage in attracting high-income retirees.

Second, the Hall tax was a relatively small source of revenue for the state. By the time the phase-out began, the Hall tax generated only a small percentage of total state revenue, making it feasible to eliminate without significant budget disruption. The state was able to absorb the revenue loss through economic growth and other revenue sources.

Third, there was a philosophical argument against the Hall tax. Critics argued that it was unfair to tax investment income while not taxing wages, and that it discouraged saving and investment. Repealing the Hall tax was also seen as a step toward broader tax reform and a simpler, more competitive tax system.

Not all no-income-tax states are the same. Each state has a different mix of taxes, different rates, and different trade-offs. Understanding how Tennessee compares to other no-income-tax states can help you decide which one might be the best fit for your financial situation.

Sales Tax: Tennessee vs Florida vs Texas

The biggest difference among no-income-tax states is the sales tax rate. Tennessee has the highest state sales tax rate among the major no-income-tax states, while Florida's state rate is lower and Texas's is in between. When local taxes are included, the picture changes slightly, but Tennessee still comes out on the high end.

Property Tax: Where Tennessee Shines

One area where Tennessee stands out among no-income-tax states is property tax. Tennessee's average effective property tax rate of approximately 0.66% is significantly lower than Texas (around 1.6%) and lower than Florida (around 0.98%). For homeowners, this can be a significant advantage.

For example, on a $300,000 home:

• Tennessee: ~$1,980.00 per year
• Florida: ~$2,940.00 per year
• Texas: ~$4,800 per year

This makes Tennessee particularly attractive for homeowners, especially retirees who own their homes outright and want to minimize their ongoing expenses. Combined with no income tax, the low property tax rate gives Tennessee one of the lowest overall tax burdens for homeowners among all states.

Which No-Tax State Is Best for You?

The best no-income-tax state for you depends on your personal financial situation:

• If you are a high-income renter: Florida, Texas, or Tennessee all offer significant savings — the exact difference depends on spending habits
• If you own an expensive home: Tennessee may be the best choice due to its low property tax rates
• If you spend a lot on taxable goods: Florida's lower sales tax might be better, even with higher property tax
• If you are a retiree: Tennessee's combination of no income tax, low property tax, and no tax on retirement income makes it very attractive
• If you have a lower income: The high sales tax in Tennessee means the overall tax burden may be higher than in states with a progressive income tax

Other Factors Beyond Taxes

Of course, taxes are not the only factor in deciding where to live. Climate, job opportunities, cost of housing, quality of schools, healthcare access, and lifestyle preferences all play important roles. Tennessee offers a lower cost of living than many coastal states, a growing economy with strong job markets in Nashville, Memphis, and Knoxville, and a relatively mild climate with four distinct seasons.

To understand the real financial impact of living in a no-income-tax state like Tennessee, it helps to compare a Tennessee resident with someone earning the same income in a high-tax state. The difference can be substantial, especially when you consider the long-term compounding effect of the savings.

$60,000 Income: Tennessee vs. a High-Tax State

Let us compare a single filer earning $60,000 per year in Tennessee versus the same person in a state with a progressive income tax and an effective state tax rate of roughly 5% at this income level:

The exact savings depend on the specific state you are comparing against and your personal situation (filing status, deductions, etc.), but the general pattern is clear: Tennessee residents keep more of their income because they pay no state income tax.

Factoring in Sales Tax

To get a complete picture, you also need to consider Tennessee's high sales tax. If you spend a large portion of your income on taxable goods, the sales tax can eat into your savings. However, for most middle- and upper-income households, the income tax savings still exceed the additional sales tax cost.

For example, if you earn $60,000 and save roughly $3,000 in state income tax, you would need to spend a very large share of your income on taxable goods for the higher sales tax to fully offset those savings. Most households spend a portion of their income on non-taxed items like groceries (taxed at a lower rate in Tennessee), rent or mortgage (not subject to sales tax), healthcare, and services.

Long-Term Impact

The long-term impact of living in a no-income-tax state can be enormous. If you save $3,000 per year in state income tax and invest those savings, the compound growth over a 30-year career could add up to hundreds of thousands of dollars. For higher-income earners, the savings are even more dramatic.

The benefit is especially large for retirees, who typically have significant investment income and retirement account withdrawals. In Tennessee, all of this income is tax-free at the state level, which can make a huge difference in retirement planning and quality of life.

Federal tax rates, brackets, and standard deduction amounts for 2026 come from IRS Revenue Procedure 2025-32 (§3.01 tax rate tables, §3.03 maximum capital gains rate, §3.14 standard deduction). Tennessee state income tax is $0 — Tennessee has no individual income tax on wages, and the Hall tax on interest and dividends was fully repealed as of January 1, 2021. Information about Tennessee's sales tax, property tax, and other state taxes is based on data from the Tennessee Department of Revenue and various research sources. Property tax rates are averages and vary by county.

Disclaimer: this is a planning tool, not tax advice or a substitute for professional tax preparation or filing software. The calculator estimates federal income tax using simplified inputs and does not account for itemized deductions, tax credits, capital gains, retirement contributions, self-employment taxes, or state-specific tax situations. Tennessee has no state income tax, but other taxes (sales tax, property tax, etc.) are not included in this calculator. Consult a tax professional for advice tailored to your specific situation.