What payroll taxes do small businesses need to pay?

Payroll Taxes for Small Businesses in Tennessee

Small businesses operating in Tennessee must manage several payroll tax obligations to stay compliant and ensure smooth operations. Understanding these taxes helps streamline payroll processes and avoid penalties.

Federal Payroll Taxes

• Social Security Tax: Employers must withhold 6.2% from employee wages and contribute an additional 6.2% for Social Security.
• Medicare Tax: Employers withhold 1.45% from employee wages and match this amount for Medicare contributions.
• Federal Unemployment Tax (FUTA): Employers pay this tax to fund unemployment benefits. The rate is typically 6.0% on the first $7,000 of each employee’s wages, but credits may reduce this rate.
• Federal Income Tax Withholding: Employers must withhold federal income taxes based on employee W-4 forms and IRS withholding tables.

Tennessee State Payroll Taxes

• No State Income Tax: Tennessee does not impose state income tax on wages, so employers do not withhold state income tax from employee paychecks.
• Tennessee Unemployment Insurance (SUTA): Employers pay state unemployment insurance taxes. Rates vary based on the employer’s experience rating and industry. These payments fund state unemployment benefits.

Operational Considerations

• Registration: Register with the Tennessee Department of Labor and Workforce Development for unemployment insurance tax accounts.
• Reporting: File quarterly wage and tax reports with both the IRS and Tennessee state agencies.
• Recordkeeping: Maintain accurate payroll records, including tax withholdings, payments, and employee classifications.
• Automation: Consider payroll software that integrates federal and Tennessee-specific tax calculations to reduce errors and save time.
• Employee Classification: Correctly classify workers as employees or independent contractors to ensure proper tax treatment.

As of 2026, staying current with federal and Tennessee payroll tax rates and reporting requirements is essential for small business compliance and operational efficiency.