Tennessee Has No Personal Income Tax — What It Means for LLCs
Tennessee has zero personal income tax. No tax on wages, no tax on LLC pass-through income, no tax on investment income (Hall Tax fully repealed 2021). For LLC owners, this means pass-through distributions to members are not taxed at the individual level by Tennessee. For the full tax guide. For formation, see how to form a Tennessee LLC.
What Tennessee Does NOT Tax (Individuals)
- Wages and salary: $0 state tax
- LLC/business pass-through income: $0 state tax
- Dividends: $0 (Hall Tax repealed 2021)
- Interest income: $0 (Hall Tax repealed 2021)
- Capital gains: $0
- Rental income: $0 at individual level (but F&E applies at LLC level)
The Trade-Off
Tennessee compensates for zero income tax through:
- Franchise & excise tax on entities ($300 minimum)
- Higher sales tax (7% state + up to 2.75% local = up to 9.75%)
- Higher formation fees ($300 per member)
- Annual Report fee ($300)
Who Benefits Most
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Get StartedTennessee LLC's zero income tax favors:
- High-income individuals (no progressive brackets eating into high earnings)
- LLC owners with significant W-2 income (untouched by the F&E tax)
- Investors with dividend/capital gains income
- Multi-income-source households
It may NOT favor:
- Low-income LLCs
- LLCs with high net worth/property (franchise tax escalates)
- Businesses that would have near-zero income tax in other states anyway
Compared to Other No-Income-Tax States
| State | Income Tax | Entity Fee/Tax | LLC Formation | Annual Maintenance |
|---|---|---|---|---|
| Tennessee | 0% | F&E: $100+ min | $300/member | $400+ min |
| Florida | 0% | None | $125 | $138.75 |
| Wyoming | 0% | None | $100 | $60 |
| Texas | 0% | Margins tax (variable) | $300 | $0 |
| Nevada | 0% | $200 business license | $75 | $350+ |
Tennessee's zero income tax comes with the highest entity-level minimum ($600/year) among no-income-tax states.
FAQ
Is Tennessee really a zero income tax state?
Yes, for individuals. No tax on any form of personal income. The entity-level F&E tax is the only "income-like" tax, and it applies to the LLC, not to members personally.
Did Tennessee recently eliminate its income tax?
The Hall Tax (which taxed interest and dividends over $1,250/$2,500) was phased out 2016-2020 and fully repealed January 1, 2021. Tennessee never had a general income tax on wages or business income.
Does zero income tax help if I also live in Tennessee?
Enormously. Your W-2 income, investment income, and LLC distributions are all untaxed at the state level. Only the LLC itself pays the F&E tax. Your total state tax burden is potentially much lower than in income-tax states.