Tennessee has become a retirement destination because of its low cost of living and low property costs. It also has a very limited income tax, so most residents, including most retirees, do not have to pay the state income tax.
The state offers newcomers lots of outdoor recreation activities and a rural lifestyle. It is also one of the fastest growing states in the country with one of the fastest growing cities – Nashville.
Tennessee Cost of Living
Some costs are higher in Tennessee. For example, Nashville had the second highest fuel prices in the United States. Prices there increased significantly during the gas price increases of 2005. Housing prices were also fairly high in the city, with the average house in Nashville costing $153,650. Despite having some high prices, the overall cost of living in Nashville was 10% lower than the national average.
Tennessee Income Tax
Tennessee has an income tax but most forms of retirement income, including Social Security, pensions, and IRA withdrawals, are exempt. The 6% individual income tax only applies to income from bonds, notes, and stock dividends.
Interest from US savings bonds and tax exempt municipal or state bonds is taxed in Tennessee. Life insurance policies that pay interest are subject to the Tennessee income tax. Savings account interest is taxable in Tennessee but money market funds are not.
There is a $1,250 individual exemption and a $2,500 exemption for persons filing jointly for the Tennessee income tax. This means the first $1,250 or first $2,500 in interest or dividend income is not taxable. If you have no dividend or interest income, you do not have to file an income tax return in Tennessee.
Certain jobs in Tennessee are subject to the Professional Privilege Tax. This tax affects most professionals including doctors, lawyers, architects, veterinarians, insurance and real estate agents, and stockbrokers. All of these professionals have to pay $400 per year in order to practice their occupation.
Tennessee Sales Tax
Sales taxes in Tennessee are very high. When state and local sales taxes are combined the overall tax rate can be as high as 9.9%. Unlike most states, Tennessee collects sales tax on all food sales, including grocery purchases.
Tennessee collects a state sales tax on all retail purchases including food. The sales tax on food is 5.5% and the sales tax on all other purchases is 7%. If an item costs between $1,600 and $3,200 the purchase could be subject to a 2.75% single article tax rate. The gasoline tax in Tennessee is 1 cent per gallon and all motor fuels are subject to this tax.
Tennessee also charges an 8.25% sales tax on cable and satellite TV and a 7% sales tax on phone and internet service. Local governments in Tennessee can charge a 1.5% sales tax on internet service.
Tennessee Property Taxes
The average Tennessee homeowner paid around $2,000 in property taxes in 2010. Residents of Nashville can pay quite a bit more in property taxes. Their average property tax in 2010 was around $4,000. Average property taxes in some rural counties were less than $1,500 in 2010.
Homeowners that are over 65 in Tennessee can receive a state property tax relief check that is equivalent to a portion of their property tax. To get this relief, taxpayers must have an income under $26,830 a year. Persons must apply to their county trustee.
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