A new bill recently passed by Tennessee state lawmakers allows seniors to earn more money before they have to pay the Hall income tax, the only income tax allowed in the state. The Hall income tax is a 6 percent tax on income people receive from investments, generally dividends and interest payments. If and when the changes in Senate Bill 32 are signed into law, an increased income exemption would be available when people file their taxes in 2016.

Before the changes to the Hall income tax were proposed, there were only two authorized exemptions from paying the tax. Individuals who earned less than $1,250 a year from their investments, or $2,500 for a couple, were exempted from paying the tax. Individuals aged 65 and older who earned less than $33,000 a year in total income, or $59,000 in joint income, were also exempted from the tax. The bill passed by lawmakers increases those total income thresholds to $37,000 for single filers and $68,000 for joint filers, effective for tax year 2015.

The income tax changes should bring a little bit of financial relief to Tennesseans who are 65 or older. Nearly 50 percent of all Hall tax filers and roughly half the revenue the state receives from the tax comes from seniors. If those seniors have a pension and receive social security, they’ll likely be required to pay the tax on any investment income they receive.

Many in the state are prioritizing the ability of seniors to live on modest savings over the state’s need for the revenue, calling it a painless way to help some of the seniors in the state. The Hall income tax brought in nearly $240 million in tax revenue in 2014. According to the Tennessee Department of Revenue, the proposed changes would reduce the state’s tax revenue by roughly $1.5 million per year, affecting both state and local governments. Some lawmakers are fighting for a complete repeal of the tax but it is unlikely that the state could afford to lose the nearly quarter billion it receives from the tax.

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