Tennessee Payroll 101: Everything Employers Need to Know
If you’re an employer in Tennessee, you know that payroll taxes can be overwhelming. What’s the difference between federal and state withholding? Which deductions are required, and which are optional? When do tax payments need to be made? This list of frequently asked questions about Tennessee payroll will answer all your questions, and then some!
- The Tennessee Department of Labor and Workforce Development (TDLWD) requires that all employers submit quarterly payroll reports online.
- Employees must be paid at least the minimum wage, which is currently $7.25/hour in Tennessee.
- In addition, employees must be paid overtime wages for any hours worked over 40 in a workweek, as well as time and a half for any hours worked over 12 on a Saturday, Sunday or holiday.
Every employer in Tennessee is required by law to keep a record of all wages, hours, and other compensation paid. However, there are some exceptions. Some employers can use the Electronic Devices for Time Reporting (EDTR) system that is offered by the U.S. Department of Labor’s Wage and Hour Division (WHD). This system allows employers to report their time and payroll information electronically without keeping any records on paper.
Nondiscrimination laws prohibit employers from discriminating against employees based on race, color, religion, sex (including pregnancy), national origin, age (40 or older), disability or genetic information. Tennessee’s state law prohibits discrimination based on race and color.
Taxes you can withhold from employees’ wages
In Tennessee, employers are required to withhold state income tax from wages. The amount of tax withheld is calculated by multiplying the employee’s taxable wage by the appropriate withholding table, and then subtracting any pre-tax deductions. You can find more information on the withholding tables for Tennessee at www.tn.gov/revenue/payroll/.
In addition to state income tax, you may be required to withhold federal taxes if your employees work in a location outside of Tennessee where their federal taxes are not withheld from their wages (e.g., a military base).
Special payroll tax credits and deductions for employers
In the State of Tennessee, employers are allowed a credit or deduction for the following:
1) Tax for employing individuals with disabilities. The credit is equal to 50% of the wages paid in excess of $2,000 in a calendar year. The employer may not claim more than $4,000 of this tax credit.
2) Veteran’s tax credit. The amount is equal to 25% of the wages paid in excess of $4,000 in a calendar year and the employer may not claim more than $6,250 of this tax credit.
3) Welfare-to-Work tax credit.
Federal payroll taxes
The Internal Revenue Service (IRS) has an exemption for the first $1,200 of wages paid to each employee. The Social Security Administration and Medicare taxes are also exempt. However, this does not mean that you do not have to pay them; they just won’t be withheld from your employees’ checks.
State payroll taxes
The state of Tennessee requires employers to withhold six percent (6%) of gross wages as the employee’s contribution. Wages are defined by Tennessee Code Annotated §7-51-102 as all remuneration for personal service including money, goods, things in action, and other valuables.
Section 7-51-107(a)(2) defines compensation for labor as the fair market value of the goods or services rendered.
Electronic filing options
If you have 25 or fewer employees, you can submit your Tennessee quarterly report and/or final report and pay any taxes due electronically. The cost for this service is $20 per year.
If you have more than 25 employees, you’ll need to file using the Tennessee Quarterly Report and Final Report (Form T-4) and pay any taxes due by mail. The cost for this service is $140 per year.
Note that if you owe unemployment insurance contributions, they must be paid by mail regardless of how many employees the business has.
Due dates for paper returns and payments
- Tax withholding (W-2s, 1099s) – January 31
- State withholding (W-2s, 1099s) – January 31
- Federal withholding (1095-C) – February 28
- Final payroll reports and payments (1095-B, 1099-Misc., etc.) – April 30
Penalties for late or incorrect forms
Late or incorrect forms result in penalties. The employer is subject to a penalty of up to $25 per form, up to $250 for one year. Forms must be submitted by the end of the following month (e.g., January 31). This is not an exhaustive list and there may be other penalties that apply depending on the situation.