Tennessee payroll setup for your first hire

Tennessee does not take state income tax from paychecks

There is no Tennessee income-tax withholding account to open. A federal Employee’s Withholding Certificate (Form W-4) still sits with the IRS. A payroll login is not a state withholding number, because Tennessee does not assign one.

The Tennessee Department of Revenue’s GEN-34 article says Tennessee has no state income tax on earned income and therefore has no withholding requirements. The old Hall tax on some interest and dividends ended on January 1, 2021. That tax was never a paycheck withholding. This is like Texas, Florida, and Washington on that one point. The unemployment portal and the workplace-injury rule are not the same as those states.

When you owe unemployment: $1,500 in a quarter, or one person in 20 weeks

TDLWD collects state unemployment tax. That tax is often called SUTA, state unemployment tax, or SUI, state unemployment insurance. TDLWD’s unemployment-insurance-tax page is the regular-shop test. You are liable if you pay $1,500 or more in total gross wages in a calendar quarter. You are also liable if you have at least one employee during twenty different weeks in the current or preceding calendar year. One of those two tests is enough. The employee does not have to be the same person for twenty weeks. Full-time and part-time work both count.

That page also names a FUTA path. FUTA is the Federal Unemployment Tax Act. A shop that is liable under FUTA and has at least one Tennessee employee is liable here, no matter the weeks or the payroll. A successor who takes over a shop that already pays unemployment tax is an employer. TDLWD’s Handbook for Employers restates those tests and cites T.C.A. § 50-7-205.

This is not California’s $100-in-a-quarter test. There is no 15-day California clock on the TDLWD page. Do not copy that clock onto Tennessee. Massachusetts uses 13 weeks, not 20. Do not copy a 13-week clock onto Tennessee. Tennessee has no state paycheck-withholding account the way Massachusetts, Arizona, or Colorado do.

Other tests sit on that TDLWD page. Household work uses $1,000 in cash wages in a quarter. Agricultural labor uses $20,000 in a quarter, or ten people in 20 weeks. A 501(c)(3) shop uses four people in 20 weeks. State and local government units are employers. This scorecard is the regular-business path.

Register on Employer e-Services. Liable shops get an eight-digit account number.

Every employer completes an online registration so TDLWD can decide liability. TDLWD’s Employer Registration page is that door. New shops without an account number go to Employer e-Services on Jobs4TN. Choose Register my business. Create a username and password. Answer the business questions. Do not log in first as if you already have a number. There is no 15-day California clock on that page. File when the facts show you are an employer.

If TDLWD finds you liable, it assigns an eight-digit employer account number. The unemployment-insurance-tax page prints that number as eight digits. Hold that number. Use it on reports and payments. Do not substitute a federal EIN. Gusto’s help article prints the same number as XXXX-XXX X. Patriot prints 0000-000 0. Those are vendor formats for the same eight digits. Confirm the live number on Employer e-Services.

Paper shops once used the Report to Determine Status, Application for Employer Number (Form LB-0441). TDLWD’s LB-0441 instructions still name that form. The live start is the online Register my business path. A TPA, a third-party administrator such as a payroll firm, uses a different e-Services sign-up.

TDLWD’s premium-rate page says a new employer keeps the new-employer rate until the account has been subject to premiums and chargeable with benefits for thirty-six consecutive months ending December 31. The next July 1, TDLWD can move the shop to an experience rate. That page prints 2.7% as the new-employer rate for all other industries. The LB-0441 instructions say that, starting July 1, 2021, all industries use 2.7%. Use the rate on your Notice of Premium Rate, not a number from a software page. TDLWD’s UI tax-rate page explains reserve-ratio experience rates after that first period.

After the account exists, file the quarterly premium and wage reports in Employer e-Services. Gusto names those files the Premium Report (Form LB-0456) and the Wage Report (Form LB-0851). Patriot’s tax table names Form LB-0456. Confirm the live names on Employer e-Services. A quarterly wage report is not the new-hire report.

New hire is a 20-day Department of Human Services report. Employer e-Services does not take it.

The new-hire report is a list of who you just hired. It is not a box on the TDLWD wage report. TDLWD’s new-hire page requires the report within 20 days of the date they are hired or rehired. File with the Tennessee New Hire Reporting Program. TDLWD’s own link on that page is the Tennessee Department of Human Services’ New Hire Reporting page. TDLWD’s employer FAQ says Employer e-Services does not handle new hires. The program sits with the Department of Human Services, not the unemployment portal.

The program’s reporting-fundamentals page restates the 20-day clock. A rehired person is someone who returns after 60 days off. Report people you expect to pay, even if they work one day. The page also names contractors among the people to report. Employers who send reports electronically send two monthly files, not more than 16 days apart, when they have people to report. The program cites 42 U.S.C. § 653A. Its brochure cites T.C.A. §§ 36-5-1102 through 36-5-1105. A quarterly LB-0456 or e-Services wage report does not satisfy that clock. This is not Massachusetts’s 14-day Department of Revenue report.

Workplace injury insurance waits until five employees. Construction and coal mining start at one.

This is not Florida’s four-employee wait. It is not the three-employee test used in Georgia, North Carolina, or Virginia. It is not a first-hire policy for an ordinary shop. Tennessee calls this workers’ compensation.

The Tennessee Bureau of Workers’ Compensation non-construction page is the ordinary-shop rule. Employers working in Tennessee, and not in construction, with five or more employees must carry coverage. Buy a policy from a licensed workers’ compensation insurance carrier, or qualify as self-insured through the Department of Commerce and Insurance, Self-Insured Division. Ordinary first-hire shops do not self-insure. Tennessee is not Washington’s exclusive state fund. Tennessee is not Ohio’s Bureau of Workers’ Compensation monopoly. The Bureau does not sell that policy.

Minors, working family members, and part-time people count toward five. The Bureau cites T.C.A. § 50-6-102(10)(A) through (E) for who is an employee. Owners of a sole proprietorship, limited liability company, or partnership are left out of that five-person count. A corporate officer who works full time is in the count. That officer may later exclude himself or herself from the policy. If the shop later drops below five people, file a Notice of Withdrawal from Coverage of the Tennessee Workers’ Compensation Law (Form I-3). Coverage can stop after the Bureau accepts that form.

The construction page is a first-employee rule. All construction-industry employers, also called construction service providers, with one or more employees must cover those employees. Seasonal, part-time, family, and as-needed people count. Admin staff count. Coal-mining shops with one or more employees must cover them too. Construction owners must cover themselves unless they qualify for an exemption. TDLWD’s workers’ compensation FAQ restates both the five-employee ordinary rule and the first-employee construction and coal-mining rules. A payroll login is not a policy.

Patriot’s registration article says you can sign up through a private provider or a state-operated fund. That state-fund line is what the software page says. The Bureau’s ordinary path is a licensed private carrier or self-insurance through the Department of Commerce and Insurance. Do not treat Tennessee like Washington or Ohio on that point.

How Gusto and Patriot describe Tennessee

Tennessee has no state paycheck-withholding number to confirm. Confirm the unemployment account and rate on Employer e-Services and on the Notice of Premium Rate. Confirm workplace injury insurance with a licensed carrier or on the Tennessee Bureau of Workers’ Compensation employer pages.

Gusto’s Tennessee help article says Middesk (Gusto’s business-verification company) may register state income-tax withholding and state unemployment insurance (SUI). Tennessee has no state paycheck withholding. The same article’s Tennessee note says that. It names TDLWD for unemployment tax. It tells you every employer registers online so the state can decide liability. If you are liable, TDLWD sends an eight-digit employer account number, printed as XXXX-XXX X, and a rate. Gusto lists the Premium Report (Form LB-0456), the Wage Report (Form LB-0851), and the new-hire report among Tennessee files. Confirm the live number on Employer e-Services. Confirm the rate on the Notice of Premium Rate. Read Gusto’s Tennessee article. See Gusto on the directory.

Patriot’s tax table says Full Service files Tennessee Unemployment Insurance (SUI or SUTA) on Form LB-0456. Patriot’s registration article puts a “Register With the TN Department of Revenue” header over the unemployment account. That header is agency-confused. Unemployment sits with TDLWD, not the Department of Revenue. The article then tells you to create the account online, or to email EmployerStatus.Rates@tn.gov, and says TDLWD assigns an 8-digit employer account number. It does not claim Patriot opens that account. The same article prints a 2.7% new-employer SUTA rate for the first three years. TDLWD also prints 2.7% on its premium-rate page. Use the rate on your Notice of Premium Rate, not a number from a software page. The article also says workplace injury insurance can come from a private provider or a state-operated fund. The Bureau’s ordinary path is not a Washington-style state fund. Read Patriot’s article and Patriot’s registration article. See Patriot on the directory.

What still sits on the employer

• Decide that the $1,500-quarter test, or the 20-week test, has been met. Household, agricultural, successor, Federal Unemployment Tax, and 501(c)(3) shops use other tests.
• Complete Register my business on Employer e-Services so TDLWD can decide unemployment liability.
• Hold the eight-digit TDLWD employer account number. Do not substitute a federal EIN for that number.
• Enter the premium rate from the Notice of Premium Rate, not a marketing figure. TDLWD prints 2.7% as the current new-employer rate for all industries. Confirm the live notice.
• File the quarterly premium and wage reports in Employer e-Services after liability begins.
• Do not open a state paycheck-withholding account. Tennessee does not take state income tax from paychecks.
• File the Tennessee new-hire report with the Department of Human Services program within 20 days of hire or rehire after 60 days. A quarterly e-Services wage report does not satisfy that clock.
• Buy workplace injury insurance when an ordinary shop reaches five employees. Construction and coal mining buy it from the first employee. The Tennessee Bureau of Workers’ Compensation does not sell that policy. Payroll software does not issue that policy.
• Do not copy another state’s clock onto Tennessee. Tennessee does not use California’s $100-quarter test. Tennessee does not use Massachusetts’s 13-week unemployment test. Tennessee does not use Florida’s four-employee workplace-injury wait. Tennessee does not use the three-employee wait used in Georgia, North Carolina, or Virginia. Tennessee does not use Washington’s exclusive state fund. Tennessee does not use Ohio’s Bureau of Workers’ Compensation monopoly.

Also forming a company in Tennessee? Process Score compares registered agents there.