Tennessee is one of the few states that does not levy a personal income tax on its residents. However, it currently imposes a 6 percent tax on interest and dividend income from investments known as the Hall Income Tax. There are some exceptions, but is generally applied to interest and dividend income over $1,250 per person and $2,500 for a married couple filing jointly.
Dividends subject to the tax include dividends from entities such as corporations and mutual funds, including capital gains. Additionally, taxable forms of interest subject to the tax include interest on bonds from corporations. It also generally taxes municipal bond income from political subdivisions outside of Tennessee and foreign governments.
The good news is that State Lawmakers just approved a bill that cuts the Hall Income Tax to 5% this year (returns due April 15, 2017) and eliminates it ENTIRELY for tax year 2022.
The Bill will now go to Gov. Bill Haslam for approval.
We will keep you posted.