In May 2016, Gov. Bill Haslam signed legislation to phase-out the Tennessee Hall Income Tax. The legislation reduced the Hall Tax rate from 6% to 5% for 2016, and it slated the tax rate to be dropped by 1 percentage point annually thereafter until it is eliminated on January 1, 2021. The Hall Tax is a Tennessee state tax on interest and dividend income from investments. It is the only state tax that is levied on personal income.
Unless the taxpayer qualifies for an exception, the Hall Tax is applied to all taxable interest and dividend income in excess of $1,250/person ($2,500 for married filing jointly). The revenues from the tax are shared with the government of the municipality or county where the taxpayer lives.
Here is the schedule of the Hall Tax phase-out:
- 5% for tax years beginning January 1, 2016, and prior to January 1, 2017
- 4% for tax years beginning January 1, 2017, and prior to January 1, 2018
- 3% for tax years beginning January 1, 2018, and prior to January 1, 2019
- 2% for tax years beginning January 1, 2019, and prior to January 1, 2020
- 1% for tax years beginning January 1, 2020, and prior to January 1, 2021
- Full repeal for tax years beginning January 1, 2021
The reduction this year to 1% – and the repeal to happen next year – has been a welcome development for many investors in the Volunteer State. Considering how quickly time passes, the New Year to ring in 2021 will be here before we know it.
