Tennessee State Withholding Requirements
Learn the specific state-level payroll duties for Tennessee employers, including registration and quarterly reporting for employer-funded obligations.
Payroll withholding is the system employers use to deduct taxes from employee paychecks for the government. The rules for this process differ by state, requiring businesses to understand their obligations in each location where they employ workers to ensure timely tax compliance.
State Income Tax on Wages
Tennessee does not impose a state income tax on an individual’s wages, salaries, or bonuses. Consequently, employers in Tennessee are not required to withhold state-level income tax from their employees’ paychecks, which simplifies the payroll process. There is no state withholding registration or quarterly tax form to file for this purpose.
Despite the absence of a state income tax on wages, employees must still manage their federal tax obligations. Employers must have each employee complete a federal Form W-4, “Employee’s Withholding Certificate,” to determine the correct amount of federal income tax to withhold. The “Hall Income Tax,” a former tax on certain interest and dividend income, was fully repealed as of January 1, 2021, and does not apply to earned income.
Tennessee Unemployment Insurance Tax
The primary state-level payroll tax for Tennessee employers is the State Unemployment Tax Act (SUTA) tax, which funds the unemployment insurance (UI) program. This is an employer-paid tax, meaning the funds are paid by the business and are not deducted from employee wages.
A business is liable for this tax if it paid at least $1,500 in total wages in any calendar quarter or if it had at least one employee for some part of a day in 20 different weeks during a calendar year. New employers who meet these liability requirements are assigned a standard unemployment tax rate of 2.7% on the first $7,000 of wages paid to each employee annually.
Employer Compliance for Unemployment Insurance
To comply with unemployment insurance regulations, a new employer’s first step is to register with the Tennessee Department of Labor & Workforce Development. This is done by completing and submitting the “Report to Determine Status (Form LB-0441)” to establish a state tax account.
To complete Form LB-0441, a business must provide its nine-digit Federal Employer Identification Number (FEIN), legal and trade names, and physical and mailing addresses. The form also requires details about the business structure, such as whether it is a sole proprietorship, partnership, or corporation, and the date the first payroll was issued. This application can be downloaded from the department’s website and submitted electronically.
Once registered, employers must file a quarterly “Premium and Wage Report (Form LB-0456).” This report details the total wages paid to all employees during the quarter and is used to calculate the amount of unemployment tax due. Even if a business had no employees or paid no wages during a quarter, it is still required to file the report.
The submission of these quarterly reports and associated tax payments are managed through the state’s Employer e-Services portal, accessed via the Jobs4TN.gov website. Employers must adhere to the quarterly deadlines to avoid potential penalties and interest charges for late submissions.