State guide · Tennessee · 2026 rules

S corporation in Tennessee: what the election changes

Tennessee has no income tax on wages or business income, yet the S election can cost more here than in most states. The reason is the excise tax.

Updated October 24, 202611 official sources

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You’ll need: last year’s Schedule C (line 31) and the W-2 from any job you also hold. Everything else starts at a typical value you can change.

State where the business is Each state treats the election differently. The check shows only the questions that matter there.

Net profit for the year, before paying yourself Your business's profit after expenses. Money you take out for yourself does not lower it.

Where do I find this?

Schedule C, line 31 (“Net profit or (loss)”) on last year’s return.

For this year: sales minus business expenses so far, scaled to a full year. Owner draws are not an expense.

Salary you would pay yourself as an S corporation What you would pay yourself through payroll. The IRS expects a reasonable salary for the work you do.

Where do I find this?

No form shows this yet: you choose it. It should be about what you would pay someone else to do your work.

The salary finder just below shows what employees in your job earn in your state or metro area. What the IRS looks at.

Salary finder: what people in your job earn (BLS)

Your job Pick the job closest to what you do most of the week.

Area Pick your metro area if it is listed. Pay varies by area.

Another job I also earn W-2 wages from a job outside this business

Typical values: change them if you know yours

Payroll service, per year typical value Published one-person prices: $492 to $684 a year (October 2026).

Where do I find this?

Your payroll provider’s price page or quote, for one employee: you. Published prices compared.

Extra tax-prep cost for the S-corp return typical value A survey average: the fee for Form 1120-S minus the fee for Schedule C (2020 fees).

Where do I find this?

Ask your preparer what a Form 1120-S (the S corporation’s own return) would cost, then subtract what you pay now for Schedule C.

Your top federal income tax rate Not sure? Keep 22%. It changes line 5 only.

Where do I find this?

Your taxable income is on Form 1040, line 15. Find the rate for that income and your filing status in the IRS rates and brackets table.

Filing status Changes the result only above $200,000 of earnings ($250,000 if married filing jointly, $125,000 if married filing separately).

Where do I find this?

The box checked under Filing Status at the top of your Form 1040.

Choose a state and enter your profit and salary to see the comparison.

The excise tax changes; the franchise tax does not

A single-member LLC owned by an individual is not disregarded for Tennessee franchise and excise tax. It pays the franchise tax of 0.25% of net worth ($100 minimum) before and after the election.

For excise tax, the LLC subtracts the income subject to federal self-employment tax (Schedule J2, line 8). For an active single-member LLC that removes the business profit from the base.

After the election there is no self-employment deduction: the excise tax is 6.5% of the S corporation’s net earnings, starting from Form 1120-S income after your salary, less a standard deduction of up to $50,000. The higher the profit left after salary, the more the excise tax takes back.

A sole proprietor with no LLC owes neither tax today.

Payroll taxes on your salary

Unemployment insurance: 2.7% for a new employer on the first $7,000 of wages. Tennessee counts anyone a corporation pays for services as its employee, including an officer who owns stock. There is no state income tax withholding.

Worked examples

A single-member LLC owner, single filer, 22% federal bracket, default payroll and return costs. The figure is total tax and added costs as an S corporation compared with staying as you are.

Profit / salary	Statewide
$80,000 / $45,000	$779 lower
$120,000 / $60,000	$2,973 lower
$200,000 / $90,000	$5,199 lower

Starting payroll in Tennessee

Register for unemployment insurance with the Tennessee Department of Labor and Workforce Development. There is no state withholding account.

The S corporation reports its Form 1120-S income on Schedule J3 of the franchise and excise return (Form FAE170).

New hire paperwork for Tennessee

Other states

All state guides and the map

Sources

Federal figures: IRS Publication 15 (2026), Schedule SE and Form 2553 instructions. Every figure was read on an official page and checked a second time. Checked October 24, 2026. How we check facts.

An estimate from public rules, not tax advice.

Ready to elect? See the Form 2553 steps.

Electing S corp status