Many Americans choose to move when they retire. Some want to be closer to their grandchildren, while others have always wanted to live in the mountains or on the coast and finally have the chance to live their dream. Still others are simply looking for a more pleasant climate or a less expensive place to live. Tennessee has become a retirement destination because of its pleasant climate, reasonable cost of living and relatively generous tax laws.
No Income Tax on Pensions in Tennessee
Tennessee is one of the most retirement-friendly states in the union, as Social Security benefits, IRA income and all types of pension income are not taxed in Tennessee. Tennessee does have a relatively high sales tax, with a 6 percent to 7 percent base state rate; an additional 1.5 to 2.75 percent sales tax can be added by counties and cities.
Tennessee Income Tax
Tennessee has a very limited state income tax. There is no income tax on wages, salaries or retirement benefits, but a 6 percent income tax is levied on stock dividends and interest from bonds and other financial instruments. The first $1,250 in taxable income claimed by a single filer and $2,500 for joint filers is exempt from the 6 percent income tax.
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Low-Income Retirement Exemption
Tennessee also has a blanket exemption from state income tax for single filers over 65 with a total income of less than $16,200 or joint filers over 65 with a total income less than $27,000.
Income Taxes on Pensions in Other States
In New York, Social Security, military, civil service, and New York state/local government pensions are exempt from state income tax, but out of state or private pensions are not. Filers over age 59 1/2 are allowed an annual $20,000 exemption. There is no income tax on pensions or any other retirement income from in Pennsylvania after age 59 1/2. Social Security, military and railroad retirement benefits are exempt from income tax in Wisconsin. Most Wisconsin state and local government retirees also qualify for an income tax exemption, but out-of-state government pensions and income private retirement plan are fully taxed. Wisconsin offers a $5,000 exemption for taxable retirement plans for low-income filers.