Illinois vs Tennessee: Taxes & Take-Home Pay 2026

Chicago to Nashville: what changes

Nashville, Knoxville and the Chattanooga area draw steady movers from the Chicago region. Tennessee does not tax wages, and its Hall tax on interest and dividends was fully repealed for tax years beginning January 1, 2021, so there is no personal income tax of any kind. Illinois taxes net income at a flat 4.95%.

Tennessee makes up for it with sales tax: its 9.61% average combined rate is the second highest in the country. For most working households the income tax saving is much larger than the extra sales tax.

Worked example: single filer at $95,000

Illinois income tax on $95,000 of wages is about $4,558 after the $2,925 exemption. In Tennessee it is zero. Now add sales tax on $25,000 of taxable spending a year at each state’s average combined rate: about $2,245 in Illinois and $2,403 in Tennessee, a difference of $158. Net saving from the move: roughly $4,400 a year before housing costs.

Groceries and everyday purchases

Tennessee taxes food and food ingredients at a reduced 4% state rate plus local tax. Illinois eliminated its 1% state grocery tax on January 1, 2026, but many Illinois cities and counties adopted their own local grocery taxes. For a household spending heavily on groceries, Tennessee costs a little more at the register.

On general purchases, Tennessee’s state rate is 7% and local governments can add up to 2.75% (maximum 9.75%). Illinois’s state rate is 6.25%, with local rates averaging 2.73%; Chicago’s combined rate is 10.5%, higher than any Tennessee city.

Retirees and investors

For retirees the picture is narrower than for workers, because Illinois already leaves Social Security, pensions and qualified plan and IRA withdrawals untaxed. A retiree living on those sources sees little income tax change by moving. The difference shows up on interest, dividends and capital gains: Illinois taxes them at 4.95%, Tennessee not at all since the Hall tax repeal. Someone with $50,000 of annual investment income saves about $2,330 a year.

Property tax and payroll

Property tax rates in both states are set locally and vary by county and city, so compare actual bills for the homes you are considering. Illinois offers an income tax credit for property tax on a principal residence for filers with federal AGI up to $250,000 single or $500,000 joint; Tennessee has no income tax to credit against.

Neither state withholds employee contributions for disability or paid family leave, so the paycheck difference is exactly the Illinois income tax.

Who benefits most from the move

• High earners with wages: every dollar above the exemption saves 4.95%, and the Illinois exemption disappears above $250,000 of AGI (single).
• Investors and business sellers: interest, dividends and capital gains are untaxed in Tennessee, and the gain on a large sale can make the move worth tens of thousands of dollars.
• Retirees living on pensions and Social Security: little income tax change, because Illinois already exempts that income; sales tax may even rise.
• Large-family grocery shoppers: Tennessee’s 4% state grocery rate plus local tax is a recurring cost Illinois no longer charges at the state level.

Filing the year you leave Illinois

File Form IL-1040 with Schedule NR as a part-year resident, reporting income received while you lived in Illinois and Illinois-source income afterwards. Tennessee has no individual income tax return. If you can, time stock sales or Roth conversions for after your move date.