How Much Is Payroll Tax in Tennessee?

Payroll taxes are employer-paid taxes that fund government programs like Social Security, Medicare, and unemployment insurance. Employers across the United States, including those in Tennessee, are responsible for remitting these funds to federal and state agencies. These taxes are typically withheld from employee paychecks or paid directly by the employer.

Federal Payroll Tax Obligations

Employers in Tennessee must adhere to federal payroll tax requirements, primarily encompassing Federal Insurance Contributions Act (FICA) taxes and Federal Unemployment Tax Act (FUTA). For 2025, the Social Security tax rate is 6.2% for both the employer and the employee, applied to wages up to a limit of $176,100. Wages earned above this annual threshold are not subject to Social Security tax.

The Medicare tax rate is 1.45% for both the employer and the employee, applying to all wages without a limit. An extra 0.9% Additional Medicare Tax is imposed on employee wages exceeding $200,000 annually, though employers do not match this. FUTA tax contributes to the federal unemployment insurance program at a rate of 6.0% on the first $7,000 of each employee’s wages annually. Employers can typically claim a credit of up to 5.4% for timely state unemployment contributions, reducing the effective FUTA tax rate to 0.6% for most businesses.

Tennessee Unemployment Tax

Tennessee employers are subject to the State Unemployment Tax Act (SUTA), which funds the state’s unemployment insurance program. This tax is paid solely by the employer and provides benefits to eligible unemployed workers. For 2025, Tennessee’s SUTA taxable wage base remains at $7,000 per employee, meaning employers pay SUTA taxes only on the first $7,000 of an employee’s gross wages each year. This wage base matches the federal minimum.

New employers in Tennessee are typically assigned an initial SUTA tax rate of 2.7%. After a period, an employer’s SUTA tax rate is determined by an “experience rating,” reflecting the amount of unemployment benefits paid to their former employees. This experience rating can cause the rate to vary, ranging from 0.01% to 10.0% for experienced employers.

No State or Local Income Tax

A significant aspect of Tennessee’s payroll tax landscape is the absence of state or local income taxes on wages. Unlike many other states, Tennessee does not levy a state income tax on salaries, wages, or any other form of work income.

Cities and counties within Tennessee generally do not impose local income taxes on wages. The repeal of the “Hall Income Tax” on interest and dividends, effective January 1, 2021, means Tennessee no longer taxes any form of personal income. This absence of state and local income taxes directly impacts the overall tax burden for both employers and employees in Tennessee, making the state’s payroll tax structure notably different from states with additional income tax withholding requirements.