The Hall Tax in Tennessee was a state tax on dividend and interest income that was repealed effective January 1, 2021. No one owes Hall Tax on investment income earned in 2021 or later. But if you lived in Tennessee during 2020 or any earlier year, received taxable dividends or interest, and never filed a Hall Tax return, the state can still assess that tax against you with no deadline, along with penalties of up to 25% and interest currently running at 11.50%.
What the Hall Tax Was
The Hall Tax applied to two kinds of investment income: dividends from stocks and interest from bonds, notes, mortgages, or similar written debt instruments that matured more than six months after they were issued.1Justia. Tennessee Code 67-2-102 – Imposition, Rate and Collection of Tax2Tennessee Department of Revenue. Hall Income Tax Manual Short-term instruments maturing within six months, including demand notes and certificates of deposit, were not taxable. Wages and salaries were never covered.
Trusts and estates were subject to the same rules. If you were a beneficiary of an out-of-state trust that distributed taxable dividends or interest to you, you owed the tax on that income unless a specific exemption applied.
When the Tax Ended
The rate sat at 6% for decades, dropped to 5% in 2016, and then stepped down one percentage point each year until full repeal.3Tennessee Department of Revenue. HIT-4 – Hall Income Tax Rate4Tennessee Department of Revenue. IMPROVE Act The last taxable year was 2020. No return should be filed for any period beginning on or after January 1, 2021.5Tennessee Department of Revenue. Hall Income Tax
Why an Unfiled Past Return Still Matters
Repeal did not forgive earlier obligations. Tennessee generally has three years from December 31 of the year a return was filed to assess additional tax. If you never filed, or filed a fraudulent return, there is no time limit at all.6Justia. Tennessee Code 67-1-1501 – Limitation on Assessment and Collection of Taxes A Tennessee resident with $10,000 of dividend income in 2018 who never filed still has an open-ended liability years later. Filing a delinquent return actually starts the three-year clock, so resolving the issue is usually better than waiting.
Exemptions That May Mean You Owed Nothing
Before filing anything, check whether you qualified for an exemption. Many taxpayers did.
The Standard Exemption
Every individual filer could exclude the first $1,250 of otherwise taxable dividends and interest. Married couples filing jointly could exclude $2,500.7Justia. Tennessee Code 67-2-104 – Exemptions If your investment income for the year was below those amounts, you owed nothing.
Age 65 and Older
For tax years beginning in 2015 and later, taxpayers 65 or older were fully exempt if their total annual income from all sources (including Social Security and other non-taxable federal income) was $37,000 or less for a single filer, or $68,000 or less for joint filers where at least one spouse was 65 or older.8Tennessee Department of Revenue. Exemptions and Deductions These thresholds used gross income before deductions, so you could not reduce your way under the limit.
Blindness, Quadriplegia, and POW Status
Legally blind individuals were fully exempt and did not need to file at all, provided a one-time physician’s certification was submitted to the Department of Revenue. On a joint return with a sighted spouse, the blind spouse’s share of investment income was exempt and the sighted spouse reported their own share.9Tennessee Department of Revenue. Hall Income Tax Exemptions
Quadriplegic taxpayers received a narrower exemption limited to investment income connected to the circumstances that caused their condition, with doctor certification required; half of jointly held investment income was treated as exempt. Tennessee residents declared prisoners of war by the U.S. Department of Defense were exempt during captivity and for 60 days after release.7Justia. Tennessee Code 67-2-104 – Exemptions
Even if an exemption meant you owed nothing, filing is still worth considering, because it starts the three-year assessment clock running.
How to File a Delinquent Hall Tax Return
The return is Form INC 250, Tennessee’s Individual Income Tax Return.10Tennessee Department of Revenue. Tennessee Individual Income Tax Return Year-specific versions are posted on the Department of Revenue website, and you need the one that matches the tax year you are reporting. You will need your Social Security number, your spouse’s if filing jointly, and your brokerage statements or IRS Forms 1099-DIV and 1099-INT for the year in question.
List all taxable dividends and interest on Schedule A, then subtract your applicable exemption ($1,250 individual, $2,500 joint). Apply the rate that was in effect for that tax year.
You can submit the return electronically through TNTAP, Tennessee’s online tax portal, or mail a paper return to the Department of Revenue’s processing center in Nashville.11Tennessee Department of Revenue. Tennessee Taxpayer Access Point Payment of the balance owed, including penalties and interest, must accompany the return. TNTAP accepts electronic checks and credit cards.
Voluntary Disclosure Agreements
If the Department has not contacted you about your unfiled returns, you may qualify for a Voluntary Disclosure Agreement. The program generally waives penalties when a taxpayer comes forward on their own, files all required returns, and pays the tax and interest owed.12Tennessee Department of Revenue. Voluntary Disclosure Agreements General Information The lookback period is typically three years. Interest cannot be waived, but given the 5%-per-month penalty structure, avoiding the penalty alone can be substantial. Apply by emailing voluntary.disclosure@tn.gov or writing to the Department’s Discovery Unit in Nashville. Once an auditor or letter from the Department has reached you, this option is no longer available.
What the Penalties and Interest Add Up To
The Department charges a penalty of 5% of the unpaid tax for each month, or partial month, that payment is late, capped at 25%.13Tennessee Department of Revenue. GEN-16 – Penalties and Interest A $1,000 tax bill becomes $1,250 at the maximum before any interest.
Interest runs on top of that and resets annually. The rate for the fiscal year ending June 30, 2026 is 11.50%.14Tennessee Department of Revenue. Tax Rates and Interest Rate Rates have climbed in recent years, from 7.25% in the fiscal year ending June 2022 to 12.50% in the year ending June 2025. An unfiled 2019 or 2020 return has been collecting interest at these elevated rates on top of the full 25% penalty cap.
Refunds for Overpaid Hall Tax
If you overpaid Hall Tax, you can file a refund claim with the Commissioner of Revenue within three years of December 31 of the year the payment was made.15FindLaw. Tennessee Code Title 67 Taxes and Licenses 67-1-1802 For taxes paid on time with a 2020 return, that window closed on December 31, 2023. If you made a delinquent payment more recently, the three-year clock starts from the payment date; someone who paid a delinquent 2019 Hall Tax bill in 2024 would have until December 31, 2027 to claim a refund. Late claims are barred, so check your records now rather than counting on the Department to catch the overpayment itself.
Can You Deduct a Late Hall Tax Payment on Your Federal Return?
Yes. The IRS lets you deduct state income taxes paid during the current year, including payments for prior-year state tax obligations, on Schedule A of Form 1040 as part of the state and local tax (SALT) deduction.16Internal Revenue Service. Topic No. 503, Deductible Taxes The SALT deduction is capped at $40,000 for most filers and $20,000 if married filing separately. Because Tennessee has no other state income tax, a delinquent Hall Tax payment is likely your only state income tax item for the year. You have to itemize to get any benefit; if your total itemized deductions come in below the standard deduction, the write-off has no practical value.
Records to Keep
Hold onto investment records and filed returns for any year covered by the Hall Tax. If you filed, the Department has three years from December 31 of the filing year to audit.6Justia. Tennessee Code 67-1-1501 – Limitation on Assessment and Collection of Taxes If you never filed, keep brokerage statements and 1099 forms indefinitely, because an assessment can come at any time and you will need the documentation to calculate what you actually owe or to prove an exemption applied. Once a delinquent return goes in, keep the supporting records for at least three more years from December 31 of the year of filing.