Tennessee Payroll Compliance Guide 2026

Tennessee is one of nine states with no income tax on wages, which makes its payroll compliance picture significantly simpler than most. No state withholding account, no state withholding form for employees to complete, no quarterly state income tax reconciliation. That simplicity is real — but Tennessee still requires SUI registration, workers compensation coverage, and adherence to federal FLSA rules. For employers new to Tennessee or expanding from a complex state, the reduction in payroll tasks is noticeable.

One clarification that comes up often: Tennessee previously had the Hall Tax on investment income (dividends and interest), which was sometimes confused with an income tax on wages. The Hall Tax was a separate levy on passive income, not employment income — and it was fully repealed effective January 1, 2021. As of 2026, Tennessee has zero state-level tax on any wages, salaries, or employment compensation.

Tennessee Payroll Obligations at a Glance

State Unemployment Insurance (SUI)

Tennessee's SUI program is administered by the Tennessee Department of Labor and Workforce Development (TDLWD). SUI is an employer-paid tax; Tennessee employees do not contribute to state unemployment. The SUI wage base in Tennessee is $7,000 per employee per calendar year — the same as the federal FUTA wage base, which is among the lowest in the country.

SUI Rates for 2026

• New employer rate: 2.7% until an experience rating is established
• Experienced employer range: 0.01% to 10%, assigned annually based on reserve ratio history
• Taxable wage base: $7,000 per employee per calendar year
• Maximum annual SUI cost per employee (at 10%): $700
• New employer annual cost per employee (at 2.7%): $189

Tennessee uses a reserve ratio formula to assign experience rates. The reserve ratio is your account's accumulated balance (premiums paid minus benefits charged) divided by your average taxable payroll. A higher positive reserve ratio earns a lower rate. TDLWD assigns rates annually, and employers receive their rate notice before the start of each calendar year.

Registering for SUI with TDLWD

New Tennessee employers register for SUI online through the TDLWD Employer Self-Service portal at tn.gov/workforce. You will need your federal EIN. Upon registration, you receive a Tennessee employer account number, your initial 2.7% rate, and access to the portal for quarterly wage filing.

FUTA Credit Reduction Risk

Tennessee employers who pay SUI on time receive the standard 5.4% FUTA credit, reducing the effective FUTA rate to 0.6% on the first $7,000. Tennessee has generally maintained a solvent trust fund, but confirm the credit status each year. States that borrow from the federal government to pay unemployment benefits lose part of the FUTA credit, increasing employer costs. The IRS publishes an annual FUTA credit reduction list each November.

No State Income Tax on Wages

Tennessee imposes no income tax on wages, salaries, commissions, or any other employment compensation. This has been true throughout Tennessee's history. The only state-level tax that resembled an income tax was the Hall Tax, enacted in 1929 — but that applied exclusively to dividends and interest income, not wages. The Hall Tax was phased out over several years and eliminated entirely on January 1, 2021.

Practical consequences for Tennessee employers:

• No state withholding account to open with the Tennessee Department of Revenue for payroll purposes
• No state employee withholding form (there is no Tennessee equivalent of the W-4)
• No quarterly state income tax deposits or returns
• No annual state W-2 reconciliation for income tax purposes
• Employee pay stubs show federal withholding only — there is no Tennessee withholding line

Franchise and Excise Taxes (Business-Level)

While Tennessee does not tax employee wages, the state does levy a Franchise and Excise Tax on business net worth and net earnings. This is a business tax, not a payroll tax, and is filed separately with the Tennessee Department of Revenue. Sole proprietors and single-member LLCs taxed as pass-throughs may have different exposure. Consult a CPA for your business-level Tennessee tax obligations.

Minimum Wage in Tennessee 2026

Tennessee has no state minimum wage statute of its own. The federal minimum wage of $7.25 per hour governs Tennessee employers covered by the federal Fair Labor Standards Act (FLSA). Tennessee has not passed and has no pending legislation to raise the minimum wage above the federal floor, and there is no automatic indexing mechanism in state law.

FLSA Coverage in Tennessee

Most Tennessee employers are subject to the FLSA and must pay at least $7.25/hr. The FLSA covers enterprises with annual gross revenues of $500,000 or more and any business engaged in interstate commerce. Individual employees engaged in interstate commerce are also covered regardless of the business's revenue. The vast majority of Tennessee employers fall under FLSA jurisdiction.

Tipped Employees

Under federal FLSA rules, tipped employees may be paid a cash wage as low as $2.13 per hour, provided tips bring total hourly compensation to at least $7.25 per hour for every workweek. When tips fall short, the employer must make up the difference. Employers claiming the tip credit must notify employees, maintain records, and can only apply the credit for hours spent in the tipped occupation.

Youth Minimum Wage

The federal youth minimum wage of $4.25 per hour applies to employees under 20 years old during their first 90 consecutive calendar days of employment. After 90 days, the full $7.25 applies. Employers cannot displace existing employees to hire at the youth wage.

Overtime Rules

Tennessee follows federal FLSA overtime standards. The state has no separate overtime law. Non-exempt employees must receive at least 1.5 times the regular rate for all hours over 40 in a workweek. Key points:

• Overtime is calculated on a workweek basis — a fixed, recurring 168-hour period (7 consecutive 24-hour days)
• Pay period length (bi-weekly, semi-monthly) does not affect overtime calculation — the workweek is the governing unit
• Exempt employees (executive, administrative, professional, outside sales, computer employees) must meet both a duties test and a salary basis test of at least $684/week
• Tennessee does not require daily overtime for hours over 8 in a day — only weekly overtime applies

Pay Frequency and Final Paycheck Rules

Pay Frequency

Tennessee requires that wages be paid at least semi-monthly (twice per month). Employers may pay more frequently. The key requirement is regularity — once you establish a pay schedule, you must maintain it. Changing pay schedules requires advance notice to employees.

Tennessee Code Annotated § 50-2-103 requires that wages be paid on regular paydays designated in advance by the employer. Employees must be notified of their payday before work begins.

Final Paycheck Rule

Under Tennessee law, a departing employee's final wages must be paid no later than the next regular payday following the last day of employment. This applies to both resignations and terminations. Tennessee does not require immediate payment on the day of termination, distinguishing it from states like California (which requires same-day payment upon involuntary discharge).

No State Paid Family Leave

Tennessee has no state paid family leave (PFL) program and no state disability insurance (SDI) fund. There are no employee payroll deductions for state PFL or SDI in Tennessee.

Tennessee employers with 50 or more employees within a 75-mile radius are covered by the federal Family and Medical Leave Act (FMLA), which requires up to 12 weeks of unpaid, job-protected leave per year for qualifying family and medical reasons. FMLA leave is unpaid under federal law, though employers may allow employees to substitute accrued paid leave concurrently.

Smaller Tennessee employers — below the 50-employee FMLA threshold — have no mandatory family leave obligation beyond what they choose to offer voluntarily.

Tennessee as a Right-to-Work State

Tennessee is a right-to-work state under Tennessee Code Annotated § 50-1-201 through 50-1-204. The practical effect for employers:

• Employees cannot be required to join a union as a condition of hire or continued employment
• Employees cannot be required to pay union dues or fees as a condition of employment
• Union security agreements (clauses requiring union membership) are unenforceable in Tennessee
• Employers cannot enter into closed-shop or union-shop agreements

Right-to-work status does not prohibit unions from forming or operating in Tennessee — it simply means membership and dues payment must be voluntary. Several large Tennessee employers have union agreements that coexist with the right-to-work framework.

From a payroll perspective: Tennessee employers do not withhold or remit union dues unless an employee has voluntarily authorized the deduction in writing. Even with a voluntary authorization, the employer must maintain records of the employee's consent and the amounts deducted.

Workers Compensation Requirements

Tennessee workers compensation is governed by the Tennessee Workers' Compensation Law (TCA Title 50, Chapter 6) and administered by the Tennessee Bureau of Workers' Compensation. The employee threshold for most industries is five employees.

Coverage Requirements by Industry

Employers in construction and coal mining face the strictest requirement: workers compensation is mandatory from the first employee. A single-person construction operation that hires even one worker on a day-labor basis is legally required to carry coverage. Misclassifying workers as independent contractors to avoid this requirement is a common compliance violation and carries significant penalties.

How to Obtain Coverage

Tennessee employers obtain workers compensation coverage from licensed private insurance carriers or through approved self-insurance arrangements. Tennessee does not operate a state workers compensation fund (unlike Washington or Wyoming, which have monopolistic state systems). Coverage must be in place before the fifth employee begins work.

Sole Proprietors and Partners

Sole proprietors and general partners are not counted as employees for Tennessee workers compensation purposes and are not automatically covered. They may elect to cover themselves by endorsement on a commercial policy, which can be valuable for proof-of-coverage purposes when working as subcontractors.

Certificate of Insurance

Tennessee contractors working with other contractors or hiring subcontractors should require certificates of workers compensation insurance before allowing work to begin. A contractor can be held liable for uninsured subcontractors' workers compensation claims under Tennessee's unlicensed contractor liability provisions.

New Hire Reporting

Tennessee employers must report all new hires and rehires to the Tennessee New Hire Reporting Program within 20 days of the employee's first day of work (or, if reporting semi-monthly, the two reporting dates must not be more than 16 days apart). The report must include:

• Employee's full name, address, and Social Security number
• Date of hire
• Employer's name, address, and federal EIN

New hire reports support child support enforcement efforts. Reports can be submitted online through the Tennessee New Hire Reporting Center, by mail, or by fax. Employers with 250 or more new hires per year must file electronically.

Employer Registration in Tennessee

Before running your first Tennessee payroll, complete these registrations:

Tennessee Department of Labor — SUI Account

Register for unemployment insurance online through the TDLWD Employer Self-Service portal at tn.gov/workforce. You need your federal EIN. You receive a Tennessee employer account number and your initial SUI rate on registration.

State Income Tax Withholding — Not Required

No state income tax withholding account registration is required. Tennessee does not tax wages; there is no state withholding account to open.

Workers Compensation Insurance

Obtain a workers compensation policy from a licensed Tennessee carrier before you reach the applicable employee threshold. For construction employers, coverage is required from day one. File the required employer information with the Tennessee Bureau of Workers' Compensation.

Tennessee Business License

Most Tennessee businesses must obtain a business license from their county clerk's office. This is a local business registration, not a payroll registration, but it is required before doing business. The standard business license fee is $15 and must be renewed annually.

Filing Schedules and Deadlines

SUI — Quarterly Wage Reports

Tennessee SUI is reported quarterly through the TDLWD Employer Self-Service portal. Reports include per-employee wage detail and the tax payment. The quarterly due dates are:

State Income Tax Returns — Not Applicable

Tennessee employers have no state income tax withholding returns to file. The W-2 distribution obligation (January 31) applies only to federal requirements; Tennessee does not require a separate state W-2 filing for wage withholding purposes.

Federal Filing Obligations

Tennessee employers follow standard federal filing schedules — Form 941 quarterly returns, federal payroll tax deposits per the IRS deposit schedule (monthly or semi-weekly based on lookback period), and annual W-2/W-3 filings by January 31. The simplification from having no state income tax withholding is meaningful: Tennessee employers file fewer returns than employers in most other states.

Federal Payroll Taxes

Tennessee employers must manage all standard federal payroll obligations in addition to SUI:

• Social Security (OASDI): 6.2% employer + 6.2% employee on wages up to $176,100 (2026)
• Medicare: 1.45% employer + 1.45% employee on all wages (plus 0.9% Additional Medicare Tax on employee wages exceeding $200,000)
• FUTA: 6.0% on first $7,000, reduced to an effective 0.6% with the full state UI credit
• Federal income tax withholding: Based on the employee's Form W-4 elections
• Form 941: Quarterly federal payroll tax return due April 30, July 31, October 31, and January 31

Because Tennessee's SUI wage base ($7,000) matches the FUTA wage base exactly, FUTA calculations align directly with your SUI reporting. Once SUI wages are exhausted for an employee, FUTA wages are also exhausted. This simplifies mid-year tracking for small Tennessee employers.

Frequently Asked Questions

What is Tennessee's SUI rate for new employers in 2026?

New Tennessee employers pay 2.7% on the first $7,000 in wages per employee per calendar year. Experienced employers receive TDLWD-assigned rates ranging from 0.01% to 10% based on their unemployment claims history. At 2.7% on a $7,000 wage base, the maximum annual cost per new employee is $189.

Does Tennessee have a state income tax on wages?

No. Tennessee does not tax wages or salaries. The Hall Tax on dividends and interest was fully repealed effective January 1, 2021. Employers in Tennessee have no state income tax withholding obligations — employees see only federal withholding on their pay stubs.

What is the minimum wage in Tennessee in 2026?

Tennessee has no state minimum wage. The federal floor of $7.25 per hour applies to FLSA-covered employers. Tipped employees may receive $2.13/hr in cash wages as long as tips bring total hourly pay to $7.25. No increases are scheduled in Tennessee.

When must Tennessee employers issue a final paycheck?

By the next regular payday following the last day of work. Tennessee does not require same-day payment upon termination. Accrued vacation payout at termination depends entirely on the employer's own written policy — Tennessee law does not mandate it.

Is Tennessee a right-to-work state?

Yes. Under TCA § 50-1-201, employees cannot be required to join a union or pay dues as a condition of employment. Union membership and dues deductions must be entirely voluntary. Employers must have written authorization from an employee before deducting union dues from wages.

When is workers compensation required in Tennessee?

For most industries, once you have 5 or more employees. Construction and coal mining require coverage from the first employee. Coverage must come from a licensed private carrier — Tennessee has no state workers compensation fund. Misclassifying employees as independent contractors to avoid the threshold is a violation and carries penalties.

Does Tennessee have paid family leave?

No. Tennessee has no state PFL or SDI program. Federal FMLA provides 12 weeks of unpaid, job-protected leave for eligible employees at covered employers (50+ employees). There are no Tennessee payroll deductions for paid family leave.