Tennessee has no state income tax on wages or salaries: the Hall Tax on investment income was fully repealed effective January 1, 2021. Tennessee residents keep 100% of earned income free from state income tax. The state sales tax rate is 7.00%, with local additions up to 2.75% for an average combined rate of 9.61%. Groceries are taxed at a reduced 4.00% state rate (plus local taxes).
State Income Tax
None (0%)
State Sales Tax
7.00% state / 9.61% avg combined
Grocery Tax (State)
4.00% state rate
Capital Gains
No state tax
Tennessee Has No State Income Tax
Tennessee is one of nine states with no individual income tax on wages and salaries. The Hall Income Tax: which previously taxed dividends and interest income from bonds: was repealed effective January 1, 2021 (Public Chapter 427, 2016). All earned income including wages, tips, overtime, bonuses, and self-employment income is free from Tennessee state income tax. Tennessee funds state government primarily through sales tax, which is among the highest in the nation.
Tennessee Sales Tax 2026
Tennessee's state sales tax rate is 7.00%. Counties and cities may add up to 2.75% in local sales tax (must be in multiples of 0.25%). The average combined rate across Tennessee is approximately 9.61%, ranking Tennessee among the top 5 highest combined sales tax states nationally. Most goods and services are subject to sales tax; food for home consumption is taxed at a reduced rate.
Tennessee Grocery Tax 2026
Tennessee taxes food and food ingredients at a reduced 4.00% state rate (reduced from 5% in 2023). Local sales taxes (up to 2.75%) apply on top of the state rate. In most Tennessee jurisdictions, the combined grocery tax rate is approximately 6.75% or higher. Prepared food, candy, and soft drinks are taxed at the full state rate of 7.00%. Tennessee is one of the few states that taxes unprepared groceries, though at a preferential reduced rate.
OBBBA Tips and Overtime in Tennessee
The One Big Beautiful Bill Act (OBBBA) introduced federal deductions for tips, overtime, and senior income. Since Tennessee has no state income tax, these deductions reduce only your federal tax liability: there is no state tax to save. Tennessee workers with tip income or overtime already pay $0 state tax on all earnings regardless.
Tennessee Retirement Tax (Fully Exempt)
Tennessee has no state income tax, so all retirement income is entirely exempt from state taxation. Social Security benefits, pension income, 401(k) distributions, IRA withdrawals, and annuities are all free from Tennessee state tax. The repeal of the Hall Tax (effective January 1, 2021) also eliminated Tennessee's prior tax on dividends and bond interest, making Tennessee one of the most retirement-friendly states for after-tax income.
No. Tennessee has no state income tax on wages or salaries. The Hall Tax on investment income (dividends and interest) was fully repealed effective January 1, 2021. Tennessee residents pay $0 in state income tax on earned income. All wages, tips, overtime, and salaries are entirely free from Tennessee state taxation.
Does Tennessee tax groceries?
Yes: Tennessee taxes groceries at a reduced 4.00% state rate. Food and food ingredients are taxed at 4.00% state sales tax (reduced from 5% in 2023). Local sales taxes (up to 2.75%) also apply to grocery purchases on top of the state rate, resulting in combined grocery tax rates of approximately 6.75% or higher in most jurisdictions. Tennessee is one of the few states that taxes unprepared groceries.
What is the sales tax rate in Tennessee?
Tennessee's state sales tax rate is 7.00%. Local jurisdictions (counties and cities) may add up to 2.75%, for an average combined rate of approximately 9.61%. Tennessee consistently ranks among the top 5 highest combined sales tax rates nationally. Groceries are taxed at a reduced state rate of 4.00%.
Does the OBBBA tips and overtime deduction apply in Tennessee?
The OBBBA federal deductions for tips, overtime, and senior income reduce your federal taxable income. Since Tennessee has no state income tax, there is no state-level conformity question: you already pay $0 state tax on all earned income including tips and overtime. The federal deductions still benefit Tennessee residents through reduced federal tax liability.
Does Tennessee tax retirement income?
No. Tennessee has no state income tax (Hall Tax fully repealed effective January 1, 2021). All retirement income: Social Security benefits, pensions, 401(k) distributions, and IRA withdrawals: is entirely exempt from Tennessee state taxation. Tennessee is one of the most retirement-friendly states in the nation from a tax perspective.
Does Tennessee tax capital gains?
No. Tennessee has no state income tax. The Hall Tax on investment income (which previously taxed certain dividends and interest from bonds) was fully repealed effective January 1, 2021. Capital gains, dividends, and interest income are not taxed at the Tennessee state level. Only federal tax applies to investment income for Tennessee residents.
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