Tennessee Hall Tax Update

March 7, 2019 | Aubrey Consiglio

In 2016, State lawmakers approved a bill (House Bill 534/ Senate Bill 1221) that would reduce and phase-out Tennessee’s Hall income tax on stock and dividend income. By 2021, it will be completely eliminated. Today, we are over halfway to the elimination of the tax, with the Hall income tax rate at just 2%.

Here is the phase-out schedule from the IRS:

  • 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 Hall tax is the only Tennessee state tax that is imposed on personal income and is most known by S Corporation owners who pay the tax on dividends paid from their S corporation. About 200,000 Hall income tax returns are filed each year.

Examples of taxable dividends according to the Tennessee Department of Revenue are from corporations, from investment trusts or mutual funds, from stock of banks or savings and loan associations situated outside Tennessee, from holding companies and from money market funds. It should be noted that dividends from Real Estate Investment Trusts (REITs) are exempt from the Tennessee Hall tax and also qualify for the new 20% deduction.  Examples of taxable interest are interest on bonds, mortgages, and on written obligations that state interest is to be paid and that mature more than six months from the date of the issue.

Taxpayers 65 and older are exempt from the Hall tax if their total income from all sources is $68,000 or less for joint filers and $37,000 or less for single filers. In addition, the first $1,250 in taxable dividend and interest earnings for all single filers and the first $2,500 for all joint filers is tax-exempt.

It is rumored that the elimination of the tax could lure more retirees to Tennessee. It has also spiked interest in development for many investors in the state.

The Tennessee Hall income tax return is due on April 15. Contact your CPA for questions or assistance with filing.