Hot Topics

Welcome to the State of Tennessee

Important Points for Tennessee Residents
Income Tax (Form INC-250) (Often referred to as the Hall Tax)
Inheritance Tax (Form INC-301) • Gift Tax (Form INC-300)
Federal Tax Law Update 2010/2011
Estate Tax for 2011/2012 • Early Social Security
Know Your Credit Score

Important Points for Tennessee Residents

There are a few important income and estate/gift tax aspects for residents of the state that you need to know.

Income Tax (Form INC-250) (Often referred to as the Hall Tax)

While the state does not have an income tax based on a person's earned income, it does have a tax on interest and dividends received. Not all of the dividends and interest are taxable. The current tax rate is 6% and individuals can exclude up to $1250 ($2500 married and filing jointly).  Elderly persons (65 and over) with total income less than $16,200 single ($27,000 joint) are exempt from filing and paying this tax.

Inheritance Tax (Form INC-301)

While the federal estate tax exemption has risen to $5.12 million for 2012, the State of Tennessee continues to exempt only one million ($1,000,000). Therefore, an estate can be nontaxable at the federal level but taxable to the State of Tennessee. The tax rate is graduated, starting at 5.5% and increasing to 9.5%.

Gift Tax (Form INC-300)

The state imposes a tax on gifts and the rate of tax is affected by the type of beneficiary. Unlike the federal gift tax that uses a unified credit to reduce the tax on gifts, the State of Tennessee has no such credit and therefore it is possible that the donor will owe state gift tax, but no federal gift tax.

Gifts to family members (lineal descendents) (class A) in excess of the annual exemption (currently $13,000) are taxed at rates from 5.5 to 9.5%. Non-Family members (class B) in excess of $3000 are tax at rates from 6.5 to 16.0%. The dollar amounts taxable at these various rates differ substantially depending upon the type of recipient.

Should you have questions regarding your financial situation as a resident of Tennessee, please feel free to contact us for a complimentary discussion.

Top

Federal Tax Law Update 2011/2012

For a summary of provisions in the new tax bills passed into law in 2011, click on the resources tab and then the tax legislation update tab. Also included are the provisions of major tax legislation in 2010, 2009, and 2008.

Estate Tax for 2011/2012

The 2010 Tax Relief Act revives the estate tax for decedents dying after December 31, 2009.  The maximum estate tax rate is 35% with an exclusion amount of $5 million for 2011 and $5.12 million for 2012. The 2010 Tax Relief Act gives estates of decedents dying after December 31, 2009 and before January 1, 2011, the option to elect not to come under the revised estate tax.  The new law gives those estates the option to elect to apply (1)  the estate tax based  on the new 35% top rate and $5 million exemption with stepped-up bases or (2) no estate tax and modified carryover bases rules under previous legislation.  Any election would be revocable only with the consent of the IRS.

The 2010 Tax Relief Act provides for portability between spouses of the maximum exclusion.  This feature would allow a surviving spouse to elect to take advantage of the unused portion of the $5 million exclusion of his or her predeceased spouse.  Thus with proper planning, married couples can effectively shield up to $10 million from federal estate tax.  In the case of a surviving spouse of more than one marriage, the exclusion amount available for use by the surviving spouse would be limited to the lesser of $5 million or the unused exclusion of the last deceased spouse. These limits were increased to $5.12 million and $10.24 million respectively for 2012

Top

Important information for those considering taking Social Security before normal retirement age

The following is the current normal retirement age (NRA) as specified by the Social Security Administration (SSA):

If you elect to take social security benefits before your NRA, then your benefits are reduced $1 for every $2 you earn in excess of the earning limit. For 2012 the earning limit increases to $14,640.

In the year you reach NRA, the earning limit applies to the months prior to the month in which you reach NRA. Then your benefits are reduced $1 for every $3 you earn in excess of the earning limit. This limit is also more generous. For 2012, the annual earnings limit increases to $38,880

Once a person reaches NRA, there is no reduction in benefits for earnings.

The reduction identified above relates to a direct reduction in amounts of social security a person receives. Social security benefits may still be taxed up to 85% when income received by the taxpayer(s) exceeds $25,000 (single) and $32,000 (married filing jointly).

Should you take reduced benefits before your normal retirement age? That depends on several factors. To make an easy determination, please go to the following page.

http://www.metlife.com/individual/financial-tools/social-security-tool/index.html

Top

Know Your Credit Score

The law requires the three credit bureaus to provide you with a free credit report once a year but not your credit score.  The free credit reports can be obtained at the website www.annualcreditreport.com.  To maximize the use of this service, an individual should not order the Equifax, Experian, and Transunion reports on the same day.  Instead, stagger the reports at four-month intervals.  After all, the three bureaus do exchange certain information.

While the FICO score is the most widely used score, some lenders use another score model known as Vantage Score.  In addition, the credit bureaus have their own proprietary score which some sell to consumers.  If you are turned down for a loan or suffer an adverse action, the law requires that you receive the exact score that was used to make that decision.

Chapter 13 bankruptcy in which you agree to repay your debts over three to five years, stays on your credit record for seven years.  Chapter 7 which eliminates most debts remains on your credit report for ten years.  Foreclosure remains on your credit report for seven years.

The following is the distribution of FICO scores across the population based on FICO Banking Analytics blog.

Top