Does Tennessee Tax Social Security or Retirement Income?
By Allen Buckley, CFP®, Founder & Managing Partner, Paragon Private Wealth Management
No. Tennessee does not tax Social Security, pensions, or withdrawals from IRAs and 401(k) plans, and its tax on interest and dividends ended in 2021. You will still owe federal income tax on much of that income, and Tennessee still collects sales tax and local property tax.
Key takeaways
- No state tax on Social Security, pensions, annuities, or IRA and 401(k) withdrawals.
- Hall tax repealed: interest and dividends are not taxed by Tennessee for tax years starting January 1, 2021.
- Federal tax still applies: up to 85% of Social Security benefits can be federally taxable.
- What remains: sales tax (7% state rate, plus a local rate of up to 2.75%), local property tax, and federal estate tax for very large estates.
- Moving from California or New York? Expect one more part-year state return.
Social Security
The Tennessee Department of Revenue says Social Security benefits are not subject to state tax. The federal rules still apply. Up to 50% of your benefits can be taxable once your combined income (half your benefits plus your other income) passes $25,000 for single filers or $32,000 for joint filers. Up to 85% can be taxable above $34,000 or $44,000. If you are 65 or older, the new federal senior deduction of up to $6,000 per person (2025 through 2028) may help. We cover it in our guide to the 2026 federal tax changes.
Pensions, IRA and 401(k) withdrawals, and annuities
Tennessee does not tax pension income, distributions from IRAs and 401(k) plans, or annuity payments. Traditional IRA and 401(k) withdrawals are still taxed by the IRS as ordinary income. Qualified Roth withdrawals are federally tax-free. With no state layer, your withdrawal plan is a federal planning question, and Medicare premiums are part of it (see our IRMAA post).
Interest, dividends, and the Hall tax repeal
The Hall income tax applied only to interest and dividends. Tennessee cut its rate from 4% in 2017 to 1% in 2020 and repealed it for tax years beginning on or after January 1, 2021. Separately, a 2014 amendment to the Tennessee Constitution bars any state or local tax on payroll or earned personal income.
What Tennessee still taxes
Sales tax
The state rate is 7% on most purchases and 4% on food. Every county or city adds a local rate of up to 2.75%. That puts the combined rate on most purchases at up to 9.75%, depending on where you buy.
Property tax and senior programs
Counties and cities set property tax rates. Under the Constitution, homes are assessed at 25% of value. Two programs help some homeowners 65 and older. Property Tax Relief reimburses part of the tax for people whose 2025 income was $38,470 or less (2026 program). The Property Tax Freeze, offered only where a county or city adopts it, caps the tax on your home at a base-year amount. Williamson County's 2026 income limit is $69,150. These limits are low for many of the families we serve, but they can matter for parents or other relatives.
No inheritance tax since 2016
Tennessee's inheritance tax does not apply to deaths after December 31, 2015. The federal estate tax still applies to large estates. The basic exclusion is $15,000,000 per person for 2026.
Moving from California or New York: the final state bill
Leaving a high-tax state usually means one more return.
- California: file Form 540NR as a part-year resident. California taxes all income you received while a resident and only California-source income after you leave.
- New York: file Form IT-203 as a part-year resident.
- Retirement income after the move: a federal law (4 U.S.C. 114) bars states from taxing nonresidents on retirement income from pensions, IRAs, 401(k)s, and similar plans.
- The final bill: state income tax for a prior year that you pay during the year counts toward your federal SALT deduction if you itemize.
Residency rules depend on your facts, so keep records of your move and talk with a tax professional before large withdrawals or Roth conversions in the year you move. Our checklist for moving from California or New York and our post on why families are relocating to Franklin cover the broader move.
Frequently asked questions
Does Tennessee tax Social Security benefits?
No. Social Security is not subject to Tennessee tax. Up to 85% of benefits can still be taxable on your federal return.
Are IRA and 401(k) withdrawals taxed in Tennessee?
No. Tennessee does not tax IRA or 401(k) distributions, pensions, or annuity payments. Federal income tax still applies to traditional account withdrawals.
Does Tennessee tax interest and dividends?
No. The Hall income tax on interest and dividends was repealed for tax years beginning on or after January 1, 2021.
Does Tennessee have an estate or inheritance tax?
No. The inheritance tax does not apply to deaths after December 31, 2015. The federal estate tax can still apply above $15,000,000 per person for 2026.
If I move from California, can California still tax my IRA withdrawals?
Generally not for withdrawals you take after you become a nonresident, under 4 U.S.C. 114. Withdrawals taken while you were still a resident are taxable by California.
Talk it through with Allen
No state income tax makes the plan simpler, but federal tax, Medicare premiums, and a final state return still need attention. Paragon Private Wealth Management works alongside Paragon Tax, so we can look at your withdrawals and tax filings together. If you would like to talk through your situation, we would be glad to sit down with you in Franklin.
Paragon Private Wealth Management is a financial services group offering investment advisory services through Savvy Advisors, Inc. ("Savvy"). Savvy is an investment advisor registered with the Securities and Exchange Commission ("SEC"). Paragon Private Wealth Management is not a separately registered investment advisor.
Tax services are provided through Paragon Tax, a separate and distinct entity from Paragon Private Wealth Management and Savvy Advisors, Inc.
This is general information, not tax or legal advice.