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Official Tax Guide

Tennessee Taxes 2025: Income, Sales, and Property Tax Guide

Complete guide to Tennessee state taxes. Income tax (0%), sales tax, and what you need to know before moving.

Updated January 15, 2026
5 min read

Tennessee State Tax Guide 2025

Moving to Tennessee offers a significant financial advantage for many due to its unique tax structure. As you plan your relocation, understanding the state's tax landscape is crucial for budgeting and financial planning. This guide provides an overview of the key taxes you can expect to encounter as a new resident.

1. Income Tax

Tennessee is one of the few states in the U.S. that does not levy a tax on earned income.

  • State Income Tax Rate: 0%.
  • Structure: This is neither a flat nor a progressive tax on wages, salaries, and other forms of earned income. There is simply no state-level income tax on your paycheck.
  • Hall Income Tax: It is important to note that Tennessee previously taxed investment and dividend income (known as the Hall Income Tax). This tax was fully phased out as of January 1, 2021. Therefore, for the 2025 tax year, there is no state tax on investment income, pensions, or distributions from retirement accounts.

2. Sales Tax

While there is no state income tax, Tennessee has a relatively high combined sales tax rate.

  • State Sales Tax Rate: The statewide rate is 7%.
  • Local Taxes: This state rate is applied to most retail goods and some services. However, counties and cities can levy additional local sales taxes. When combined, the total sales tax rate in many areas of Tennessee can be 9.5% or higher. It is essential to check the specific rates for your new city and county.
  • Taxable Items: Most tangible personal property is taxable. Groceries are also subject to state and local sales tax, though at a reduced rate (4% state rate + local rate).
  • Exemptions: Common exemptions include most prescription drugs and some agricultural supplies.

3. Property Tax

Tennessee's property tax system is administered at the local level, meaning rates vary significantly across the state's 95 counties.

  • Overview: Compared to the national average, Tennessee's property taxes are generally considered low to moderate. The effective average property tax rate in Tennessee is approximately 0.60% of the assessed property value, which is lower than the U.S. median.
  • Assessment: Property taxes are calculated based on the assessed value of your home (a percentage of its market value) and the local tax rate (set by county and city governments).
  • Homestead Exemption: Tennessee offers a homestead exemption for homeowners, which can provide a modest reduction in the assessed value of a primary residence. The amount is typically $2,500 to $3,500, depending on the county.

4. Other Taxes

Beyond income, sales, and property, new residents should be aware of the following taxes:

  • Gas Tax: Tennessee has a gasoline tax, which is included in the price at the pump. As of 2023, the state tax was approximately 27 cents per gallon, with potential adjustments made by the legislature. This is a key source of revenue for transportation infrastructure.
  • Sin Taxes: The state imposes excise taxes on specific goods, often called "sin taxes." This includes higher tax rates on alcohol and tobacco products.
  • Inheritance/Estate Tax: Tennessee does not have an estate or inheritance tax. This is a significant benefit for individuals looking to pass assets to heirs.

5. Retiree Taxes

Tennessee is considered a very tax-friendly state for retirees.

  • Retirement Income: Social Security benefits are not taxed at the state level.
  • Pensions and 401(k) Withdrawals: As a result of the 0% income tax, withdrawals from 401(k)s, IRAs, and private pensions are also not taxed by the state.
  • Property Tax Relief for Seniors: Many counties offer property tax relief programs for seniors (typically age 65 and older) with limited income. Eligibility and benefits vary by county, so it's important to check with the local assessor's office.

6. Comparison to Neighbors

Tennessee's tax structure is distinct when compared to its bordering states:

  • Kentucky & Virginia: Both states have a state income tax (Kentucky has a flat rate, Virginia has a progressive bracket system). Tennessee's 0% income tax is a major advantage.
  • Georgia & Alabama: Both have state income taxes. While Alabama has some of the lowest property taxes in the U.S., its income tax is progressive. Georgia also has a progressive income tax but has been working to lower its rates.
  • Missouri & Arkansas: Both levy a state income tax. Missouri has a progressive system, and Arkansas has a flat rate, but neither offers Tennessee's income tax exemption.
  • North Carolina: North Carolina has a flat income tax rate, which is lower than many states but still higher than Tennessee's 0%.

In summary, Tennessee's lack of a state income tax often outweighs its higher-than-average sales tax for many residents, particularly for retirees and those with significant investment income.

Disclaimer: Tax laws are subject to change and can vary based on individual circumstances. This guide is for informational purposes only and should not be considered legal or financial advice. It is highly recommended to consult with a qualified CPA or tax professional for guidance specific to your situation.