Everything employers need to know about paying Tennessee unemployment insurance taxes.
If your small company employs people in Tennessee, you must pay the Tennessee unemployment insurance (UI) levy. The UI tax pays for unemployment insurance programs for qualifying workers. In Tennessee, one of the key taxes that employers must pay is the state unemployment insurance levy. Tennessee, unlike most other states, does not have state withholding taxes. Other essential employer taxes that are not mentioned here include federal unemployment
insurance and withholding taxes.
Varied states have different UI tax policies and rates. The fundamental regulations for Tennessee’s UI tax are as follows.
Become a member of the Department of Labor and Workforce Development.
As a Tennessee employer, you must register your small company with the state’s Department of Labor & Workforce Development (LWD). When you register, LWD will establish if your company is required to pay Tennessee UI taxes (premiums) and, if so, will provide you an employer account number.
Use Form LB-0441, Report To Determine Status, Application For Employer Number, to register. Blank forms may be downloaded from the LWD website’s UI Tax section. There is no cost to register your company with LWD.
You will need a federal employer identification number to set up your Tennessee UI tax account (EIN). You may get an EIN by visiting IRS.gov. In most cases, if you apply online, you will obtain your EIN very instantly.
Unemployment Insurance Tax Liability Regulations
As a typical business employer in Tennessee, you are usually obligated to pay state unemployment insurance taxes if you fulfill one of the following conditions:
you pay or intend to pay $1,500 or more in any calendar quarter you employ or expect to employ one or more people during some portion of a day in each of the twenty calendar weeks of a calendar year (the weeks do not have to be consecutive, and both full-time and part-time employees are considered)
You purchase all or part of the company of another employer who was previously subject to state unemployment taxes, or you are subject to the Federal Unemployment Tax Act (FUTA) and have at least one employee in Tennessee, regardless of the number of weeks worked or the amount of payroll.
The first three of these regulations are almost identical to those that govern liability under FUTA. As a result, if you are due under FUTA, you are almost certainly liable for Tennessee UI taxes, and vice versa. Different restrictions apply to agricultural (farm) workers, domestic (in-home) workers, and employees of certain (but not all) non-profit organizations, which are not included here.
One piece of good news is that state UI tax payments are often deductible from FUTA taxes.
Wage Structure and Tax Rates
Each employee’s salaries are subject to UI tax up to a certain yearly limit. That sum, known as the taxable wage base, cannot be less than $7,000 or more than $9,000 under current Tennessee law, and the actual amount each year might change based on the balance in the state’s Unemployment Trust Fund. In recent years, the starting pay has been set at $9,000.
The state unemployment insurance tax rate for new employers, often known as the normal starting tax rate, might alter from year to year. The North American Industry Classification System is used to determine new employer premium rates (NAICS). The NAICS was initially developed by the federal government to categorize and analyze information for various types of companies. Tennessee, on the other hand, utilizes the average tax rate for each of these types of firms (industries) when applying a UI tax rate to new employers. The intricacies are convoluted, but the overall outcome for most new employers in recent years is a starting rate of 2.7%. Based on a “experience rating,” established employers are liable to a lower or higher rate than new firms. This includes, among other things, whether your company has ever had workers file claims for state unemployment benefits.
Submit UI Tax Reports and Payments Quarterly
UI tax reports and payments (also known as premiums in Tennessee) are due one month after the end of each calendar quarter. In other words, reports and payments are required by the dates listed below:
Returns and payments for the first quarter are due on or before April 30.
Returns and payments for the second quarter are due on or before July 31.
Third-quarter returns and payments are due by October 31, and fourth-quarter returns and payments are due by January 31.
Most companies have the option of filing reports online, electronically, or on paper. Electronic filing is needed for large enterprises. Use the Tennessee Premium and Wage Reporting System to submit online (TNPAWS). You must need magnetic tape, a diskette, or a CD to file electronically, or you may utilize TNPAWS. Use Form LB-0851, Wage Report, and Form LB-0456, Premium Report, to file on paper. Each calendar quarter, copies of the paper forms are sent to employers. Blank copies of the forms are not accessible to download from government websites due to concerns about the exact format of the paper reports for computer scanning reasons.
Your quarterly premiums may be paid online using Automated Clearing House (ACH) Credit. You may also pay on paper by mailing a check together with your Premium Report or, if you submit a report online, by mailing a check along with a paper payment voucher.
Each calendar quarter, as an employer liable to UI tax, you must complete a Wage Report and Premium Report. If your firm is temporarily closed or did not pay any salaries during the calendar quarter, you must still complete the report. In such cases, put “No Payroll” in a prominent area on both the Wage Report and the Premium Report. Failure to submit “no payroll” reports on time may result in a penalty charge as well as an extra tax assessment.
Make a Public Notice (Poster)
You must display a notification (poster) about state unemployment claims in a visible location for all workers. The poster informs workers about their eligibility for UI benefits, how to continue receiving benefits, and how to file a claim for benefits. You may obtain a poster (Unemployment Insurance Poster) that satisfies all legal criteria from the Required Posters area of the LWD website.
Employees should not be misclassified as independent contractors.
Employers that hire independent contractors rather than employees are exempt from the UI tax. It is critical, however, that you should not misclassify an employee as an independent contractor. If you misclassify an employee, you may face penalties or fines.
Using Payroll Service Providers
You may decide that it is easier to delegate payroll obligations, including UI taxes, to an outside payroll agency. If this is the case, bear in mind that your company, or even you personally, may be held directly liable for errors made by an outside payroll firm.
Further Information
This page simply covers the most fundamental aspects of Tennessee UI taxes. Check the IRS and LWD websites for the most up-to-date information to avoid potential fines for inaccuracies. LWD also offers a useful booklet called Handbook for Employers, which you can obtain from their website. Employers must also pay federal unemployment insurance, state and federal withholding taxes, and record new hires, in addition to state unemployment insurance.