Tennessee Employer Guide

Tennessee Household Employer Guide 2026

Your household employee — a nanny, caregiver, housekeeper, or anyone who works in your Tennessee home — is a W-2 employee. Tennessee is one of the simplest household-payroll states: no state income tax, no state paid leave, household workers exempt from mandatory workers' comp, and a straightforward TDLWD unemployment filing once the state threshold applies.

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✓ Updated May 2026 · Verified against Tennessee Department of Labor and Workforce Development, TN Bureau of Workers' Compensation, and IRS
State Income TaxNone
Minimum Wage$7.25/hr
UI Rate2.7%
Paid LeaveNot required
Workers' CompExempt
Tennessee is one of the simplest household-payroll states in the country. There is no state income tax, no state paid sick leave or paid family leave, and domestic servants are excluded from the state workers' compensation requirement. The main Tennessee-specific item is employer-paid unemployment insurance once household wages cross $1,000 in a quarter.
Your household worker is a W-2 employee. Whether they're a nanny, caregiver, housekeeper, gardener, or personal assistant — if you control when, where, and how the work is done, they are your employee under IRS rules. That means W-2 reporting, payroll tax compliance, and federal labor law obligations. Most household workers are employees under IRS rules, not contractors — issuing a 1099 in this situation can lead to back tax penalties, interest, and wage-law liability.

When the rules apply

Tennessee household employers mainly need to watch federal payroll thresholds and the $1,000 quarterly Tennessee unemployment threshold. There is no Tennessee state income tax.

Federal thresholds
$1,000
per quarter
Triggers federal unemployment tax (FUTA), reported on Schedule H with your personal tax return.
$3,000
per year, per employee
Triggers Social Security and Medicare taxes (FICA) and W-2/W-3 reporting.
Tennessee state threshold
$1,000
per quarter
Triggers Tennessee Department of Labor and Workforce Development registration and employer-paid UI premiums.
Important simplification: Tennessee has no state wage income tax. Your employee does not need a Tennessee wage withholding form, and you do not need a Tennessee income-tax withholding account for household payroll.

How Nest Payroll handles this

Each pay period, you pay your employee the net amount directly — through Venmo, Cash App, Zelle, your banking app, or by check. Nest generates the pay stub, calculates payroll taxes, and registers you with TDLWD once the $1,000 quarterly threshold applies.

Federal taxes — quarterly EFTPS payments

At the end of each federal quarter (March, May, August, December), Nest debits your bank account for the federal taxes owed — FUTA, employer + employee FICA, and any federal income tax withheld — and remits them to the IRS via EFTPS. You'll get a confirmation email a week beforehand. Your money stays in your account until taxes are actually due. We don't hold withholdings on your behalf. At year-end, Schedule H on your Form 1040 reconciles everything Nest already paid through the year; Nest produces a signature-ready version.

Tennessee state taxes — quarterly UI premiums only

Tennessee has no state income tax. The only state-level household payroll filing is the quarterly UI premium return with TDLWD. This is an employer-paid premium, not withheld from your employee.

Tennessee UI premium: New household employers generally pay 2.7% on the first $7,000 of each employee's wages. This is employer-paid and not withheld from your employee. Nest calculates and remits this with quarterly LB-0851 filings once registration applies. Source: TDLWD — UI Tax Rates
End-of-year reconciliation: If you didn't cross the federal FICA threshold ($3,000/year per employee — most common when families start payroll late in the year or hire short-term help), we'll let you know exactly what was withheld but doesn't need to be remitted. You return those amounts to your employee, and we file accordingly.

Setup checklist (before they start)

Workers' Compensation Insurance — voluntary in TN

Tennessee is unusual: household employers are exempt from the state's mandatory workers' compensation requirement, regardless of how many domestic workers you employ or how many hours they work. Under Tenn. Code §50-6-106, "domestic servants" are specifically excluded from the workers' comp statute.

That said, voluntary coverage is still worth considering. Workers' comp can protect you if your employee is injured on the job and gives the employee a predictable benefits path without a lawsuit.

Two paths to coverage

  • Homeowner's or renter's insurance rider — call your insurance company first. Many TN policies include or can add household-employee coverage as a low-cost rider.
  • Standalone household-employer policy — available from TN-licensed private carriers if your homeowner's policy can't cover it.
Resource: TN Bureau of Workers' Compensation — Employers — official guidance on voluntary coverage options.

Form I-9 (Employment Eligibility)

Federal law requires all employers to verify employment eligibility using Form I-9. Complete this before your household employee's first day of work.

Important: Don't submit the I-9 to anyone. Keep it with your employer records in case of a future audit.

Federal W-4 (no state W-4 needed)

The federal W-4 determines federal income tax withholding. Have your household employee fill this out at hire and any time their situation changes.

No state withholding form: Because Tennessee has no state income tax, there is no TN withholding form. The federal W-4 is the only withholding form your employee needs to complete.
Note on federal income tax withholding: Federal income tax withholding is voluntary for household employers and requires agreement with your employee.

Tennessee New Hire Reporting

Tennessee requires all employers — including household employers — to report newly hired and rehired employees to the Tennessee New Hire Reporting Center within 20 days of the hire date. Penalty for non-reporting: $25 per missed employee.

With Nest Payroll: We handle Tennessee new-hire reporting automatically when you add your employee in the app.

Required Employment Posters

Tennessee employers must provide a number of state-mandated notices to their workers. For a household employer with a single employee, you can satisfy this by emailing or texting the link, or printing and giving them physical copies:

📋 TN Required Posters 📋 Federal Minimum Wage (FLSA) 📋 EEOC Know Your Rights 📋 Employee Polygraph Protection

Written Work Agreement

Tennessee state law doesn't require a written employment agreement, but a written contract prevents misunderstandings about hours, duties, PTO, and house rules.

Build a free contract with our editable template: Nest Payroll Household Employee Contract Builder — fill it out and download as a PDF.

Pay & compensation

Minimum Wage — federal floor of $7.25/hr

Tennessee has not enacted a state minimum wage. The federal Fair Labor Standards Act floor of $7.25 per hour applies. Tennessee state law also preempts cities and counties from setting higher local minimum wages — Memphis, Nashville, Chattanooga, and Knoxville all use the federal $7.25 rate.

Practical note: Most TN household employees are paid well above $7.25/hr because the local market for nannies, caregivers, and housekeepers commands far higher rates. Common rates in Nashville and Memphis range from $16–$22/hr.Source: U.S. DOL — Minimum Wage

Overtime

Tennessee follows the federal Fair Labor Standards Act (FLSA) standard: 1.5× the regular hourly rate for all hours worked over 40 in a 7-day workweek. TN has no state-specific overtime rules.

Tennessee Overtime — Household Workers
ConditionRate
Live-out, more than 40 hours in a workweek1.5× hourly
Live-in employees (any hours)Exempt from overtime
Work performed on a holiday or weekendNo premium required
Live-in exemption: Under federal FLSA — which Tennessee follows — live-in domestic workers are exempt from overtime requirements.Source: U.S. DOL — Fair Labor Standards Act

"No Tax on Overtime" Deduction (2025–2028)

The federal overtime deduction may let household employees deduct the premium portion of qualifying overtime pay on their personal tax return. This is a federal income-tax rule; it does not change how you calculate overtime, FICA, federal withholding, or Tennessee payroll records.

With Nest Payroll: Nest tracks qualified overtime reporting for W-2 purposes when required.

Pay Frequency

Household employees are virtually always hourly under federal FLSA — even when you've agreed to pay a "salary," it's treated as a wage covering a fixed number of hours per week, with overtime owed on hours past 40. Under Tenn. Code §50-2-103, employers must pay employees at least twice per month, on regular paydays; the two paydays must be no more than 16 days apart. Daily, weekly, and bi-weekly are all common for household payroll.

Whatever cadence you pick, designate the regular paydays in writing at hire and stick to them — even a simple email or text confirming "you'll be paid every Friday" satisfies the requirement.

With Nest Payroll: Nest defaults to weekly pay stubs, which automatically satisfies TN's twice-monthly minimum and gives you flexibility on the bank-transfer schedule.

Mileage Reimbursement

Tennessee does not require mileage reimbursement, but you must reimburse necessary work-related driving expenses if those costs would otherwise reduce your employee's wages below the minimum wage. Most TN employers use the IRS standard rate:

$0.725 per mile (2026)

Common reimbursable household-employee miles: driving children to activities, running household errands, taking a senior client to medical appointments. (Commuting to/from work doesn't count.)

Paystub Requirements

Tennessee does not require a specific itemized statement format, but federal best practice (and the FLSA recordkeeping requirement) is to provide your employee with hours worked, rate of pay, gross wages, deductions itemized, and net wages each pay period. Keep records for at least 3 years.

With Nest Payroll: Nest generates a compliant earnings statement (pay stub) for every weekly pay period — automatically. Each stub shows the rate, gross wages, FICA, federal income tax (if elected), net pay, and hours worked.

Tennessee payroll is simpler than many states, but it still has to be done right.

Nest Payroll handles federal and Tennessee payroll, W-2s, and Schedule H — starting at $42/mo. 14-day free trial.

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Time off & leave

Tennessee does not have a state-mandated paid sick leave law, paid family leave program, or required vacation time. The state also preempts local ordinances on these topics, so cities like Memphis and Nashville cannot mandate paid sick time for TN employers.

Paid Sick Leave

There's no Tennessee paid sick leave law, and no city or county sick leave ordinance applies. Even though it's not required, offering some paid sick time is good retention practice. A typical household employer offers 3–5 paid sick days per year.

Frontloading is the easy way to handle paid time off

If you offer paid sick or PTO time as a benefit, frontloading is the simplest approach: provide the full annual amount upfront at the start of each year (or pro-rated at hire), and let your employee draw against it as time is used. This avoids per-hour accrual tracking and unused-time reconciliation.

How Nest Payroll handles this: Nest is built around the frontloading model — you set an annual sick or PTO balance, and pay stubs reflect the running balance as time is used. Set whatever number matches what you've agreed with your worker (e.g., 40 hours/year is a common starting point).

Vacation & PTO

Tennessee does not require paid vacation. If you offer it, document the policy in writing — under TN law, vacation pay is enforceable to the extent your written policy states it will be paid out at separation. A clear policy with a written cap (or "no payout at separation" provision) protects you.

Frontloading at the start of each year is the simplest approach. If you offer paid vacation, set the annual amount upfront and let your employee draw against it as time is used — no per-pay-period accrual tracking, no carryover headaches at year-end. See our frontload PTO & payout guide for the calculation method when payout does apply (earned-but-unused, pro-rated through the last day worked, at the final rate of pay).

Upon departure

Final wages: Under Tenn. Code §50-2-103, all wages owed to a separated employee — whether terminated or resigning — must be paid by the next regular payday or within 21 days of the separation, whichever is later.

Unused vacation/PTO: Vacation pay is enforceable to the extent your written policy states it will be paid.

Final W-2: Provide the federal Form W-2 by the regular January 31 deadline (or earlier if requested by the former employee).

Year-end forms

Your responsibilities

  • Hand the W-2 to your household employee by January 31 — Nest produces this; you deliver it
  • Attach Schedule H to your Form 1040 by April 15 — Nest produces a signature-ready version

What Nest handles for you

  • Quarterly federal tax payments to the IRS via EFTPS
  • W-3 + Copy A of W-2 filed with the Social Security Administration
  • Quarterly LB-0851 filings with TDLWD once registration applies
With Nest Payroll: Your tax forms are generated automatically and appear in your Tax Summary by the end of January.
Bonuses and vacation payouts: Bonuses and vacation payouts are included on your employee's W-2 and taxed through regular payroll withholding calculations.

Tax breaks for household employers

Paying your household employee legally unlocks meaningful federal tax breaks that often offset most of your employer-side payroll tax cost.

Dependent Care FSA (DCFSA)

For 2026, the federal max contribution is $7,500 (married filing jointly) — up significantly from prior years under the OBBBA. Note: your employer's specific plan may still cap at $5,000.

Child & Dependent Care Tax Credit

Up to 50% of qualifying care expenses for 2026 — up from 35% in 2025. Capped at $3,000 of expenses for one qualifying child or $6,000 for two or more.

→ See our complete guide to nanny tax breaks

Resources & free tools

🧮 Payroll Calculator 🧮 Gross-Up Calculator 🧮 Tax Catch-Up Calculator 📄 Free Contract Builder 💡 Tax Breaks Guide 📅 2026 Tax Update 📖 Household Payroll 101 ⏰ Catch-Up on Back Taxes 📊 All 50 State Guides 🤝 How to Hire a Nanny

Ready to pay your Tennessee household employee legally?

Nest Payroll handles EIN setup, TDLWD registration, payroll calculations, and quarterly tax filings — all automatically. 14-day free trial.

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Disclaimer: The information on this page is general in nature. This is not tax, legal, benefits, financial, or HR advice. Rules and regulations change over time. Workers' compensation, the TN UI premium structure, and other compliance topics can be complex — consult an attorney, financial advisor, or licensed insurance broker for your specific situation.