Hiring your first employee in Tennessee

What do you have to register for before your first payroll?

Tennessee has no single payroll registration. Unemployment premiums are registered with the Department of Labor and Workforce Development, Division of Employment Security. Sales and use tax and business tax are registered with the Department of Revenue through TNTAP, and Revenue is explicit that a sales tax registration is not a business tax registration and is not a business license. New hire reporting runs through a third system at tnnewhire.com, and workers compensation is bought from an insurer and policed by the Bureau of Workers' Compensation. Because there is no state income tax to withhold, an out-of-state employer often assumes there is nothing to open at all and misses the unemployment account, which is due as soon as it pays wages for work performed in Tennessee.

Does Tennessee require income tax withholding?

No. Tennessee does not tax wage income, so there is no state withholding account to open and nothing to deduct from a paycheck for the state.

Tennessee taxes no wage or salary income, so there is no state withholding account, no state W-4 and no state wage tax to deduct. The old Hall income tax reached only interest and dividends and was repealed for tax periods beginning on or after January 1, 2021, so even that is gone. This is unusually hard to reverse: Article II, Section 28 of the state constitution now says the legislature shall not levy, authorize or permit any state or local tax upon payroll or earned personal income, language voters added at the November 2014 general election. You still withhold federal income tax, Social Security and Medicare as normal. Two traps follow. First, employers moving a worker to Tennessee often leave the old state's withholding switched on, which takes money the employee does not owe. Second, no withholding does not mean no payroll obligations: unemployment premiums, new hire reporting and, at 35 or more full-time equivalent employees, federal E-Verify under the Tennessee Lawful Employment Act all still apply.

What unemployment insurance does Tennessee charge a new employer?

A new Tennessee employer pays 2.7% on the first $7,000 each employee earns, so roughly $189 per employee in the first year. Tennessee calls this an unemployment premium rather than a tax. The taxable wage base is the first $7,000 of each employee's wages for calendar year 2026, unchanged every year since 2019. You are liable, and must file the Report to Determine Status, once any of the usual tests is met: you are liable under the federal FUTA and have at least one employee in Tennessee, or you pay $1,500 or more in gross wages in a calendar quarter, or you have at least one employee in twenty different weeks of the current or preceding year. Household employers cross at $1,000 of cash wages in a quarter and agricultural employers at $20,000 in a quarter or ten workers in twenty weeks. The 2.7% figure is the new employer rate the department publishes on the LB-0441 status application instructions, which state that all industries have had a new employer rate of 2.7% since July 1, 2021. Two cautions. New employer rates are set separately for each major industry group from that group's combined reserve experience, so a construction, mining or manufacturing rate can diverge from 2.7% in a future year and a manufacturer should ask for its rate in writing. And your own rate is not the new employer rate forever: after your account has been subject to premiums and chargeable with benefits for thirty-six consecutive months ending December 31, you move to an experience rate off the reserve ratio chart, which currently runs on Premium Table 6, the lowest of the six tables, in effect continuously since July 2015 except for one half-year on Table 5.

Do you need workers compensation insurance in Tennessee?

Yes, once you reach 5 employees. Below that Tennessee does not require it, but read the counting rules before assuming you are under the line, because who counts is rarely obvious.

• non-construction: five or more employees
• construction services providers: one or more employees, and the owners themselves must be covered
• coal mining: all employees, with no headcount minimum

The headcount that matters is five, but who counts differs by entity type and industry. For a non-construction sole proprietorship, LLC or partnership the owners are not counted toward the five, while corporate officers who work full time are counted, though they may exclude themselves from the policy. Minors, working family members and part-time employees all count. Construction is a different regime entirely: any construction services provider with one or more employees needs coverage, admin staff included, and owners must cover themselves unless they qualify for and obtain a listing on the state Exemption Registry. A 1099 does not settle the question, because the Bureau applies a seven factor test that weighs control of the work most heavily. Two points matter specifically to an out-of-state employer. Sending a non-construction worker into Tennessee briefly, meaning no more than 14 consecutive days or 25 total days in a calendar year, may stay exempt if you carry coverage in another state, but nothing about that exemption is automatic for longer assignments or for construction. And if you are already covered and your headcount falls below five, coverage does not lapse by itself: you must file a Notice of Withdrawal from Coverage, Form I-3, and wait for the Bureau to accept it.

How quickly must you report a new hire in Tennessee?

Within 20 days of the employee's hire, rehire or return to work; employers reporting electronically must send two transmissions a month, not less than 12 nor more than 16 days apart. Reports go to the Tennessee New Hire Reporting Program, reporting to the Tennessee Department of Human Services.

Report every new employee who lives or works in Tennessee within 20 days of the hire date, under Tenn. Code Ann. 36-5-1101 to 36-5-1108 and the federal PRWORA. Rehires count once a worker has been away 60 days or more, which catches seasonal staff and anyone returning from a long unpaid gap, and someone who worked a single day and quit must still be reported if they filled out a W-4. Unlike Florida and Texas, Tennessee does not require independent contractors to be reported: the program says that where the relationship is a contract rather than employment, federal law does not require a report and the contractor reports its own employees. Note who actually receives this. The Department of Labor and Workforce Development page presents new hire reporting as its own, but the program's site says the Department of Human Services matches the data against child support records before passing it to the national directory. Either way you file at tnnewhire.com, which is a separate system from your unemployment and Revenue accounts. Failing to report carries a $20 penalty per incident, rising to as much as $400 where the state finds a conspiracy to avoid reporting.

Does Tennessee have paid family leave or state disability insurance?

No. Tennessee runs no state paid family leave fund and no state disability insurance, so there is no payroll deduction of that kind and no extra account to open.

Tennessee runs no state disability insurance and no state paid family or medical leave programme, so there is no employee payroll deduction and no employer contribution for one. The Labor Standards Unit enforces six labour laws and none of them is a paid leave mandate. Any paid leave you give Tennessee staff is your own policy, and federal FMLA protection, if you are large enough to be covered, is unpaid. If you already run payroll in a state like California, New York or Delaware, do not carry that deduction across to a Tennessee employee.

Do you need a sales tax permit in Tennessee?

You apply for a Certificate of Registration through TNTAP, and you need one for each business location. No fee appears on the registration page or in the Department's Sales and Use Tax Manual, and the manual sets out the whole application without mentioning a payment step, but the Department never affirmatively says registration is free, so no amount is published here. The fee that does bite is a different one: a business with Tennessee gross sales of $100,000 or more in a jurisdiction also needs a $15 standard business licence from the county clerk or city official, and that is a separate errand from registering with Revenue. Flea market sellers are the one group with a published sales tax registration fee, at $45 a year, $15 a quarter or $5 a month. Once registered, returns and payments must be filed electronically, and if you sell or close the business you owe a final return within 15 days.

Does a marketplace like Amazon or Etsy handle the tax for you?

A marketplace facilitator that made or facilitated more than $100,000 of sales to Tennessee consumers in the previous twelve months must register and collect the tax on everything sold through its marketplace, counting its own sales toward that threshold. An out-of-state marketplace seller does not have to register in Tennessee if every one of its taxable sales goes through a facilitator that is collecting. The trap is the word every: the moment you also sell through your own site or any other channel, those sales are yours, and they count on their own against the $100,000 remote dealer threshold. Two narrow exceptions can push the duty back onto you, one where the Commissioner waives facilitator collection because substantially all of its sellers are already registered, and one where the facilitator and a large seller agree by contract that the seller will collect.

If your sales drop, when can you stop collecting?

Tennessee's remote dealer test looks at sales to Tennessee customers during the previous tax year, so this year's duty turns on last year's numbers rather than what you are selling today. Neither the statute nor the Department's Sales and Use Tax Manual publishes a rule for how long the collection duty trails after you drop below $100,000, which is why this is left unresolved rather than guessed. What is certain is that the registration does not lapse on its own. You keep owing electronic returns until you close the account yourself through TNTAP, and a business that is sold or closed owes a final return within 15 days.

Does Tennessee charge a tax on revenue rather than profit?

Do not confuse Tennessee's two business taxes, because only one of them is a gross receipts tax. The business tax is charged on gross sales with no deduction for cost of goods or payroll, at a rate set by which of the classifications your dominant activity falls in, and it is what people mean by a Tennessee gross receipts tax. Franchise and excise tax is a different regime entirely: excise tax is 6.5% of Tennessee net earnings and franchise tax is 0.25% of Tennessee net worth with a $100 annual minimum, so neither is measured by receipts. The property based minimum measure of the franchise tax was repealed by Public Chapter 950 for tax years ending on or after January 1, 2024. On the business tax, you owe nothing in a county or city where your receipts there are under $100,000, but registration is per location and every registered taxpayer owes a minimum tax of $22 per location, $44 if the location is in a city that levies the municipal tax, even in a year with no activity. Above $100,000 of gross sales in a jurisdiction you also need a $15 standard business licence, issued by the county clerk or city official rather than by Revenue and renewed automatically when you file and pay. Between $3,000 and $100,000 you take a minimal activity licence instead. The trap for a company expanding into Tennessee is the payroll trigger: more than $50,000 of Tennessee compensation is bright-line presence, which can create substantial nexus for both business tax and franchise and excise tax. One well paid remote employee can put you inside both regimes before you have sold anything here.

Do you have to register your out-of-state company in Tennessee?

LLC: $50 per member, with a $300 minimum and a $3,000 maximum, on form SS-4233. The $300 recorded here is the minimum, which is what an LLC with six or fewer members pays. Corporation: a flat $600 on form SS-4431. Registering an assumed name alongside the application costs another $20.

Tennessee is expensive at this step and the LLC price is not fixed, so count your members before you budget: a twelve member LLC pays $600, not $300. Whichever form you file must arrive with a certificate of existence from your home state dated no more than two months earlier, or the Division rejects it and sends it back. Corporations, nonprofit corporations and LLCs can file online; foreign limited partnerships and limited liability partnerships must file on paper. Budget for the recurring cost too, because qualifying puts you into Tennessee's annual report cycle: $20 a year for a corporation, and for an LLC the same per member structure, a $300 minimum rising by $50 for each member above six up to $3,000. Miss an annual report and the entity can be administratively revoked.

Where these figures come from

Every number on this page was read on Tennessee's own agency pages, its statute, or a current-year official form, and this record was last reviewed on 2026-09-08. Where a state's explainer page disagreed with its statute or its current form, we followed the statute or the form and said so in the relevant section, because a state's consumer-facing pages are often the last thing updated when a figure changes.

Anything we could not confirm on a primary source is left blank rather than estimated. A missing figure on this page means we could not verify it, not that it is zero.

This is general information, not legal or tax advice. Rules change and your circumstances matter. Confirm anything you are about to act on with the agency named beside it.