Tax season comes around every year. For most folks, it can be a headache — trying to sort out both your federal and state tax returns can be pretty tricky.

Luckily, if you live in the state of Tennessee, your tax burden is a little lighter than most Americans’. The Volunteer State does not collect any wage-based income tax, which means not only do you get to avoid paying those taxes, you also don’t have to file them.

Income tax isn’t the end of the story, however. Tennesseans are still responsible for property taxes, sales taxes, excise taxes, and, until 2022, capital gains taxes. Plus, you can still benefit from certain credits, deductions, and exemptions. Read on to find out what you’ll need to know as a Tennessean filing taxes this year.

As you probably know, the federal government collects taxes every year. While some of the revenue generated through taxation helps fund states’ projects, states are also guaranteed the right to levy taxes of their own on their residents. So, when tax season comes around, you’ll want to pay attention to both your federal and your state tax responsibilities.

Make sure that you’re informed about all those financial obligations (and benefits!) by reading through this guide. The last thing you want on your plate is an audit - being knowledgeable about expectations is the first step to avoiding that.

Tennessee does not have state tax brackets as the state does not impose its own income tax on wages.

However, you should be aware of the federal tax bracket into which you fall. Tax brackets are determined by income. The amount of income that you bring in includes not only your monthly paycheck from work, but also income brought in through assets like rental property and stocks.

Personal income tax is the amount that an individual is responsible to pay the government based on the income that they brought in for themselves that year. There are two basic kinds of personal income that governments in general can tax: wage based income and capital gains. Use our income tax calculator to find out how much you may owe in taxes:

The state of Tennessee does not impose personal income tax on wages.

You should still be aware of the federal income tax that is imposed on wages, however.

The State of Tennessee, however, does impose income tax on capital gains.

• As of 2019, the rate is 2%. This will be phased out by 2020, however.

A capital gains tax is a tax assessed on money made through stock market equity, buying and selling property, or through bonds. The federal government assesses capital gains taxes, and most states do as well (at a much lower rate than Uncle Sam, however).

Tennessee used to be among the states that taxed capital gains, but in 2016 it voted to repeal the Hall income tax on capital gains. Since then, the state has phased out the tax by diminishing the rate of taxation every year. As of 2022, Tennessee's capital gains tax will no longer exist.

Tennessee imposes a sales & use tax on its residents (as well as anyone who purchases goods or services in Tennessee).

Sales taxes are imposed at the counter, so to speak. When you purchase your item or service, an immediate tax is added to the total cost of what you’re buying. In Tennessee, the state sales tax rate is 7% on most goods and services, and 4% on food items. However, sales taxes don’t end with the state rate. Tennessee guarantees its cities and counties the right to impose their own additional sales tax rate.

In Tennessee, most counties tack on an additional 2.25%-2.75% rate, on top of the sales tax.

• That means that in total, Tennessee’s sales tax rates can be among the highest in the country, topping out at 9.75% for many counties.

Of course, because of the lack of statewide income tax, it only makes sense that they’d have to recuperate some revenue somewhere.

The use tax is the same rate of 4% for food and 7% on most consumer goods and services. A use tax is imposed when items are purchased out of state and so circumvent the state sales tax. So, before you get too excited about Delaware’s lack of sales tax and order in bulk from a vendor there, know that the State of Tennessee will still impose a use tax on those items.

Governments impose excise taxes to limit the use of some goods and services that might be harmful if used in excess. For this reason, some excise taxes are also known as “sin taxes,” as they often include alcohol, tobacco, and marijuana in states where it’s legal.

Tennessee does levy an excise tax on substances bought and sold within the state. Recall that in addition to the taxes described below, in most cases, sales and use tax will also apply.

Tennessee taxes alcoholic beverages based on their ABV, or alcohol by volume, which is often measured by percentage. It also distinguishes among kinds of alcohol, like liquor, wine, and beer. According to the Tennessee Department of revenue, this is how alcohol is taxed.

• $1.21/gallon: wine and high alcohol beer with alcohol content of more than 7%
• $4.40/gallon: distilled spirits with alcohol content of more than 7 %
• $1.10/gallon: alcoholic beverages with alcohol content of 7% or less

In an effort to reduce unhealthy smoking habits (and limit the amount of smoke in public places), many states impose a tax on tobacco products. While some states’ tobacco taxes can be quite punishing, Tennessee’s is lenient.

• Cigarettes are taxed at a rate of $0.62 per pack of 20.
• Other tobacco products are taxed at 6.6% of the wholesale cost.

Marijuana is presently not legal in Tennessee, either medically or recreationally. In some cases, high CBD, low THC strains of cannabis are legal for use in seizure patients.

The state does manage to bring in revenue from marijuana sales, however, as conviction for possession of marijuana can result in a fine of up to $2,500, and conviction for growing the plant, a fine of up to $5,000.

Tennessee, along with Texas, used to impose a "crack tax," a tax drug dealers were required to pay on their earnings. They were provided with a special anonymous method of payment so that they did not have to fear prosecution. This tax was ruled unconstitutional, however, and no longer is in place.

Tennessee assesses a tax on fuel purchased within the state. Many states assess a fuel tax for environmental reasons and also to fund reconstruction of roads.

As of July 2019, these are the State of Tennessee’s rates.

• $0.26 per gallon of gasoline
• $0.27 per gallon of diesel fuel

Tennessee imposes a number of taxes on different goods and services that you may want to be aware of. Many are incidental taxes, like the marriage license tax. You can find a full list of them on theTennessee Department of Revenue website.

Insurance companies in Tennessee are required to pay 2.5% in taxes on premiums from the insured.

Property taxes are assessed on the fair market value of a property - that means the value of the property if it were to go on the market today and sell for a fair price. Every year, Tennesseeans are responsible for paying property taxes to the state government.

However, Tennessee has low property tax rates.

• The median annual property tax paid by homeowners in Tennessee is just $1,088, 11th lowest in the country and about half the national average. That’s just 0.75% of the assessed value of a home, and 1.79% of the average income.

Like most states in the USA, a county or city assessor will visit your neighborhood and assess the values of the properties there once every few years. This information is updated, so be sure that you’re keeping track of the current value of your home or other property so that when tax season comes, you’re not surprised by the amount of tax your property is assessed for.

An estate or inheritance tax is a tax levied on money, property, or capital that someone leaves their next of kin when they pass away. Some states impose an inheritance or estate tax.

• Tennessee taxpayers do not have to worry about an inheritance or estate tax.

As of the start of 2016, all estate taxes have been repealed in Tennessee. However, if an estate or inheritance was passed to you prior to January 1, 2016, and you have not declared it, you must do so in order to avoid an audit.

If that sounds like you, and you’re worried about your tax situation, be sure to reach out to a Community Tax resolution specialist.

States offer relief to taxpayers generally via three different methods. One option is a tax credit. Tax credits reduce the amount of money you may owe the government dollar-for-dollar. So, if you qualify for a given tax credit, the amount of that credit is subtracted from your tax bill.

• Because the State of Tennessee does not levy any wage-based income taxes on its residents, it does not offer tax credits in cases where many states do.

For example, though residents with low income in Tennessee may be able to apply for the federal earned income tax credit, there is no state equivalent. Of course, there is also no income tax in Tennessee, which is a benefit to those with lower income.

The State of Tennessee does offer tax credits for those who open businesses and create jobs in the state, however. The Job Tax Credit is available to those who invest at least $500,000 over the course of three years. The tax credit offered amount so $4,500 per job created for qualified jobs.

The minimum number of jobs necessary to receive the tax credit depends on the county.

• 25 jobs in a tier 1 or 2 enhancement county
• 20 jobs in a tier 3 enhancement county, or
• 10 jobs in a tier 4 enhancement county

An enhancement county tier is the level of need a county has for jobs. The more job creation is necessary in that county, the more jobs one needs to create there to receive the tax credit.

Other business-related tax incentives in Tennessee can be found on the Department of Revenue website.

The other two ways that states offer relief to their taxpayers are exemptions and deductions. Exemptions basically disqualify a portion of your income from taxation — hence, it’s exempted. Deductions, on the other hand, deduct the total quantity of your income that is taxable.

At the end of the day, the two methods are fairly similar, and achieve the same goal of lowering the total amount that you owe.

• Because Tennessee does not levy a wage-based income tax on its residents, it also does not offer any standard deductions based on wage-based income tax brackets, as do other states.
• That said, for the final years of the existence of the capital gains tax, Tennessee does offer exemptions for low income earners over the age of 65 according to the following table from the Department of Revenue. The dollar values describe the limits on income to receive the exemption.

Tennessee also offers exemptions and deductions on its property tax, its business tax, and its sales and use tax. The state levies a basic business and franchise tax on businesses operating within the state. Qualifying businesses and charities, however, can be exempt from that tax.

For instance, charities and religious organizations selling used items to raise money do not have to pay the business tax.

• A full list of conditions where the sales and use tax does not apply is available on this page from the Tennessee Department of Revenue.
• The Tennessee Comptroller also offers property tax exemptions (mostly for charities and religious organizations). A description of those exemptions is available on their website.

Because most of the tax credits, deductions, and exemptions in Tennessee are itemized, and especially because most are related to business expenses, it can get pretty confusing. If you feel in over your head, consider reaching out to a specialist at Community Tax. Our experts are here to help.

The State of Tennessee doesn’t impose any state wage-based income tax, so you won’t be filing for a refund in the same way you do for your federal taxes. However, that doesn’t mean you won’t be eligible for any tax refunds at all!

If you are eligible for one of the deductions, exemptions, or credits listed above, you should make sure that you claim it. Be careful to have everything you need before sitting down to fill out your tax return. Some important documents to have on hand include the following.

• Tax returns filed in the previous year
• Statements of earnings from the investments you may have made — for at least the next 3 fiscal years, a small capital gains tax will be assessed in Tennessee, so keep those earnings statements nearby
• Your social security number and other identification information
• Any proof or records that you’ll need to show you qualify for a given credit, deduction, or exemption

Filing your taxes and calculating whether you’ll get a refund doesn’t have to be a headache. Community Tax offers experienced tax specialists who can help you navigate the complicated waters of taxation. Give us a call or book an appointment online if you think you’ll need a little guidance getting through tax season.

For the remaining years in which the Hall Income Tax on capital gains is in place, you can pay online through Tennessee File and Pay.

You can also pay your business and franchise taxes through the same system.

• The Department of Revenue offers a full list of who must file and how on their website.

If you find that you’re struggling to make your payments when you get your tax bill, Tennessee offers payment plans. You can apply for a payment plan online when you file your taxes.

Now that you’ve gotten through all the tricky details and complicated tax information, let’s check out some fun, interesting facts about taxes in Tennessee!

Remember, state taxes are only half of your tax duty every year. And, with Tennessee’s lax attitude on taxes and complete lack of wage-based income tax, you might get so relaxed you forget about taxes altogether!

Every year, of course, you’re still responsible for filing and paying your federal taxes. If you need help filing, or figuring out which itemized deductions, exemptions, and tax credits you think you might qualify for, reach out to a professional tax expert at Community Tax.

This information is accurate as of 2019. Special circumstances that can affect your tax return may apply.