Does Tennessee Tax Social Security Benefits?
Find out if Tennessee taxes Social Security benefits. Understand the state's tax environment and how federal rules may also apply.
Many individuals consider how their Social Security benefits will be taxed, as tax laws vary across states. This article provides information about Social Security taxation in Tennessee, other state taxes, and federal tax implications for these benefits.
Tennessee’s Approach to Social Security Taxation
Tennessee does not impose a state income tax on Social Security benefits. The state also does not levy a general income tax on earned wages and salaries.
Historically, Tennessee did have a limited income tax known as the Hall income tax, which applied only to interest and dividend income. This tax was fully repealed as of January 1, 2021, meaning it no longer applies to any income, including retirement distributions or investments. Social Security benefits were never subject to the Hall income tax, further solidifying their untaxed status at the state level. This tax structure positions Tennessee as a tax-friendly state for many retirees.
Other Key Taxes in Tennessee
While Social Security benefits are not taxed, residents in Tennessee are subject to other forms of taxation. The state has a sales tax. The base state sales tax rate is 7%, and local sales taxes can add an additional 0% to 3%, leading to combined rates that can reach up to 10%. The average combined state and local sales tax rate in Tennessee is approximately 9.61%.
Property taxes in Tennessee are levied at the local level by county and municipal governments. These taxes are a primary revenue source for local services and are calculated based on a property’s appraised value, an assessment ratio, and a local tax rate. For residential property, the assessed value is 25% of the appraised market value. Tax rates vary widely depending on the specific county and municipality, reflecting local budgeting and service needs.
Federal Taxation of Social Security Benefits
Even though Tennessee does not tax Social Security benefits, these benefits may still be subject to federal income tax. The federal government determines the taxable portion of Social Security benefits based on a recipient’s “provisional income.” Provisional income is generally calculated as the sum of your adjusted gross income, any tax-exempt interest, and half of your Social Security benefits.
The amount of federal tax on Social Security benefits depends on specific income thresholds. For single filers, if provisional income is between $25,000 and $34,000, up to 50% of Social Security benefits may be taxable. If provisional income exceeds $34,000, up to 85% of benefits may be taxable.
For those filing jointly, if provisional income falls between $32,000 and $44,000, up to 50% of Social Security benefits could be taxed. If provisional income surpasses $44,000, up to 85% of benefits may be subject to federal income tax. Many Social Security recipients may find that they pay no federal tax on their benefits if their provisional income remains below these thresholds.