What payroll deductions are employers required to withhold?

Payroll Tax Deductions Required for Employers in Tennessee

When managing payroll in Tennessee, employers must withhold specific payroll taxes to comply with state and federal requirements. Understanding these deductions is essential for accurate payroll processing and maintaining compliance.

Mandatory Payroll Deductions

• Federal Income Tax Withholding: Employers must withhold federal income tax based on the employee’s Form W-4 information and IRS tax tables.
• Social Security Tax: Employers are required to withhold 6.2% of the employee’s wages for Social Security tax, up to the annual wage base limit.
• Medicare Tax: A 1.45% Medicare tax must be withheld from all employee wages. Additionally, wages above $200,000 are subject to an extra 0.9% Medicare surtax withholding.
• Tennessee State Income Tax: Tennessee does not impose a state income tax on wages, so no state income tax withholding is required.
• Local Taxes: Tennessee generally does not have local payroll taxes, but employers should verify if any city-specific taxes apply.

Additional Employer Payroll Responsibilities

• Employer Payroll Tax Contributions: Employers must also pay matching Social Security (6.2%) and Medicare (1.45%) taxes on employee wages.
• Unemployment Insurance: Employers are responsible for paying Tennessee unemployment insurance taxes, which are not withheld from employee wages but must be reported and paid separately.
• Recordkeeping: Maintain accurate payroll records for all withheld taxes, including federal filings and payment confirmations.

Operational Tips

• Use payroll software or services that automatically calculate federal tax withholdings and Social Security/Medicare deductions.
• Regularly update payroll systems with current IRS tax tables and wage base limits.
• Train payroll staff on Tennessee-specific rules, especially the absence of state income tax withholding.
• Ensure timely federal tax deposits and filings, such as Form 941 quarterly reports.