Tennessee HSA Tax Rules: No Income Tax, and No Hall Tax Since 2021
Tennessee never taxed wages, and since 2021 it doesn't tax investment income either. That second part is what matters for an HSA you invest: the old Hall tax on interest and dividends is gone.
Key takeaways
- Tennessee has no income tax on wages, so HSA contributions aren't taxed by the state.
- The Hall income tax on interest and dividends was repealed for tax years beginning January 1, 2021. Older articles that mention it are out of date.
- There's no Tennessee return to file. Only the federal rules apply.
No state tax at any stage
An HSA has three tax breaks: money goes in untaxed, grows untaxed, and comes out untaxed for medical costs. In Tennessee all three hold at the state level too, because there's no state income tax to apply. The 2026 contribution limits ($4,400 self-only, $8,750 family, $1,000 extra at 55) are federal and the same as anywhere else.
What happened to the Hall tax
For decades Tennessee taxed certain interest and dividend income through the Hall income tax, even though it didn't tax wages. The legislature phased it down and then repealed it. The Department of Revenue says the tax "was repealed for tax periods that begin on January 1, 2021, or later" and asks people not to file a return for those years.
If you've read that Tennessee taxes investment income, that was true once. It isn't now.
What this means for your strategy
With no state drag on growth, investing your HSA and paying medical bills out of pocket today works at full strength. Keep your receipts and reimburse yourself later, even years later. Run your own numbers in the growth calculator.
Planning to move? California and New Jersey tax HSAs; every other state either conforms to the federal rules or has no income tax.
Quick answers
Does Tennessee tax HSA contributions?
No. Tennessee has no tax on wages, so HSA contributions, investment growth and qualified withdrawals face no state tax.
Does the Hall income tax apply to HSA interest or dividends?
No. Tennessee repealed the Hall income tax for tax years beginning on or after January 1, 2021. There is no longer any Tennessee tax on interest or dividends, inside an HSA or outside one.
Do I file a Tennessee return for my HSA?
No. Tennessee asks individuals not to file a Hall income tax return for any year starting in 2021. Your HSA paperwork is the federal Form 8889.
Sources: Tennessee Department of Revenue, Hall income tax; IRS Publication 969 for federal HSA treatment.
Your next step
Learn what applies to you, run your own numbers, then act on it.