Tennessee taxes for early retirees: the Hall tax left, the sales tax stayed

By Tom, CPA · Updated October 25, 2026

TL;DR: Tennessee has taxed no personal income since the Hall income tax on interest and dividends was repealed starting January 1, 2021. The state leans on sales tax instead: 7% state (4% on grocery food) plus local rates up to 2.75%. Lower-income homeowners 65 and older may qualify for property tax relief (for the 2026 tax year, combined 2025 income of $38,470 or less).

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

Tennessee used to have an asterisk. It didn't tax wages, but its Hall income tax reached interest and dividends, which is precisely the income a retiree lives on. That asterisk is gone. Since 2021, Tennessee has had no tax on personal income of any kind.

So where does the money come from? Mostly your shopping cart. Tennessee's combined sales tax rates are among the highest in the country. For a frugal early retiree, that's often a fantastic trade. For a big spender, less so. Let's break it down.

CPA Warning Label: Warning: zero income tax may encourage spending, which is taxed at one of the higher combined sales tax rates around.

Hall tax repeal history

The Hall income tax was a Tennessee tax on dividends from stock and interest on certain bonds and notes. It didn't apply to wages, pensions or Social Security, but it did reach investment income above an exemption, which made it a quiet tax on retirees with taxable brokerage accounts.

The legislature phased the rate down over several years and then repealed the tax. Per the Tennessee Department of Revenue, the Hall income tax is repealed for tax years beginning on or after January 1, 2021. Returns for 2020 and earlier were still due.

As of October 2026, Tennessee residents pay no state income tax on:

• Wages and self-employment income
• Pensions, IRA and 401(k) withdrawals and Roth conversions
• Social Security
• Interest, dividends and capital gains

That makes it a clean state for a Roth conversion ladder or large gain realization.

Sales tax rates

The Department of Revenue lists:

So general purchases in many areas carry close to 9.75% combined. Big-ticket single items, like cars, follow special rules for how much of the price local tax applies to, so check the details before a large purchase.

What does this mean for a retiree? Sales tax depends on what you buy, not what you earn. Housing, health insurance premiums and most services aren't taxed like goods. A household spending $50,000 a year might buy $20,000 of taxable goods, for a sales tax bill near $2,000. Frugal Fran buys used and grows tomatoes; her bill is lower. Lavish Larry bought a pontoon boat for each lake; his isn't.

Property tax relief

Tennessee's property taxes are set locally and are moderate compared with many states. The state also runs a property tax relief program through the Comptroller that reimburses part of the tax for certain homeowners:

• Homeowners 65 and older (and certain disabled homeowners) whose combined 2025 income (used for the 2026 tax year) is $38,470 or less
• Certain disabled veterans and their surviving spouses, under separate rules

Some counties and cities also offer a tax freeze program for older homeowners with limited income, which holds the tax amount steady. Programs, limits and deadlines vary, so check with your county trustee.

Early retirees with low taxable income should note that relief programs look at income, not assets, and the definition of income may include amounts that don't appear on a federal return. Read the application carefully.

Residency

Moving to Tennessee is straightforward. Get a Tennessee driver's license, register vehicles and register to vote. The bigger question is whether your old state agrees you left. If you keep a home in a high-tax state and return often, that state may still tax you. Complete the move, then do big conversions and sales. See changing state tax residency.

Verdict

Illustration. Hypothetical couple, early retired, spending $60,000 a year. They harvest $40,000 of long-term gains and do a $40,000 Roth conversion each year.

• Tennessee: no state income tax. Suppose $25,000 of their spending is on taxable goods at 9.75%: about $2,400 of sales tax.
• A state with a 4.5% flat income tax and 6% sales tax: about $3,600 of income tax on $80,000 of income (before state deductions) plus $1,500 of sales tax: roughly $5,100.

Tennessee wins this example comfortably. It wins by more for retirees with big conversions or large investment income, and by less for big spenders with little taxable income. As always, compare property taxes and insurance for the actual homes you'd buy.

Who Tennessee fits best

Tennessee's tax structure rewards a specific kind of early retiree:

• Big taxable income, modest spending. If you plan large Roth conversions, have a sizable taxable brokerage account throwing off dividends, or expect a pension, the lack of income tax is worth a lot.
• Homeowners with modest homes. Property taxes are generally moderate, so a reasonably priced home keeps the total bill low.
• People who spend on services and experiences. Sales tax hits goods more than services, so travel and hobbies built on experiences aren't hit as hard as a garage full of toys.

It fits less well if your spending is mostly on taxable goods and your taxable income is already near zero, because then you'd pay little income tax anywhere and Tennessee's sales tax becomes the main cost.

Common Tennessee mistakes

• Assuming the Hall tax still applies to dividends; it doesn't for 2021 and later.
• Forgetting that big-ticket purchases carry their own sales tax rules.
• Missing county property tax relief or freeze deadlines.
• Keeping too many ties to a former high-tax state.

Federal taxes still apply

Whatever Tennessee does, the federal system still sets the base. For 2026 the federal standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly, and long-term capital gains can fall in a 0% bracket at lower incomes. Many early retirees aim to fill the low federal brackets each year with Roth conversions or gain harvesting. Without a state income tax, the federal bill is the whole income tax story, which makes those moves simpler to plan. Social Security can become partly taxable federally as other income rises, and Medicare premiums later depend on income from two years earlier. A year of very low income can be just as wasteful as a year of very high income, because unused low brackets disappear on December 31. See 2026 tax brackets for FIRE.

Health coverage before Medicare

Before Medicare at 65, most early retirees in Tennessee buy coverage through the ACA Marketplace (HealthCare.gov or the state exchange). Premium tax credits depend on household income, so the same withdrawal choices that drive your federal tax bill also drive what you pay for insurance. Price plans for your actual county, since insurer choice and premiums vary a lot between metro and rural areas. If your taxable income will be very low, check Medicaid eligibility rules for Tennessee too. Our guides to the ACA subsidy cliff and managing MAGI go deeper.

One practical tip: estimate next year's income before open enrollment, then pick withdrawals to land where you planned. Surprises in either direction get reconciled on your federal return, and from 2026 there is no cap on repaying excess advance credits.

Your Tennessee planning checklist

Use this as a starting list when you are weighing a move or planning withdrawals. Work through it a year before you leave your job, and again each fall before you decide on Roth conversions.

• Confirm your former state's exit rules before moving.
• Budget sales tax using your actual taxable spending, not total spending.
• At 65, check eligibility for state property tax relief and any local freeze program.
• Plan Roth conversions and gain harvesting for after you're a Tennessee resident.

Tax rules change every legislative session. Confirm current figures with the Tennessee revenue department before acting, and treat this page as education, not advice for your situation.