Withholding Tax Frequently Asked Questions


Withholding Categories:



Registration for Withholding Account

I am opening a business and plan to have employees.  What license(s) do I need?

You must register for a N. C. Withholding Tax Identification Number and you may need other licenses depending on the nature of your business.  You can receive assistance with a new business start-up by visiting one of the Taxpayer Service Centersor call 1-877-252-3052 (toll free) to order a “New Business” packet through the voice mail system.  The “New Business” packet contains applications and information concerning the proper license(s) and application(s) you may need.

How do I register for N. C. withholding tax identification number?

You must submit a completed business registration application, Form NC-BR, Business Registration Application for Income Tax Withholding, Sales and Use Tax, and Machinery and Equipment Tax, to obtain a withholding tax identification number. You can submit Form NC-BR electronically or you can mail it to: N. C. Department of Revenue, Post Office Box 25000, Raleigh, N. C. 27640.  After your application is processed, you will be mailed information concerning your N. C. withholding tax account number and pre-printed forms on which to report and submit your payment of the tax withheld.

How can I get an application for a North Carolina Withholding Identification Number?

The business registration application, Form NC-BR, can be obtained online, by mail, by contacting the Taxpayer Assistance and Collection Center at 1-877-252-3052 (toll free), or by visiting one of the Taxpayer Service Centers.

Is there a fee charged to obtain a withholding identification number?

There is no fee for the withholding identification number.

Can I use my Federal employer’s identification number (FID) as my N. C. withholding identification number?

No.  You must register for a N.C. withholding identification number by completing and submitting Form NC-BR to the N. C. Department of Revenue.

How long does it takes to get a withholding tax number?

Most applicants registering electronically will receive their account number instantly. Others will receive their account number within ten business days. If the registration is not filed electronically, it may take up to four weeks. Withholding tax numbers cannot be obtained over the telephone.

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Filing Withholding Reports

How can I file withholding tax reports?

You may file and pay online or by mail.  However, you must file Form NC-5Q, North Carolina Quarterly Income Tax Return, and Form NC-3, Annual Withholding Reconciliation by mail.  If you have not received your coupon booklet before your first payroll, go to the Department’s withholding tax website to file using the proper return for your filing frequency.

When are withholding tax reports due to be filed and paid?

Withholding tax returns are filed on a quarterly, monthly, or semi-weekly basis depending on the average amount of tax you withhold each month.  If you need more information, refer to page 10 of the publication NC-30, North Carolina Income Tax Withholding Tables and Instructions for Employers.  If you would like a copy of this publication, it can be downloaded from the Department’s website.

What should I do if I need to file a return before I receive my assigned state withholding identification number?

You can go to the withholding tax forms section on the Department’s website and download the NC-5 or NC-5P depending on your filing frequency to submit your return and payment.  Since you do not have the state issued withholding account number, you must write, “Applied For” on the return.  You cannot file a return on-line if you do not have the state issued account number.  Mail your return and payment to the Department by the due date for the filing frequency of your business.

I have misplaced my coupon booklet.  What can I do?

You may file online, obtain a blank form under the Tax Forms and Withholding Tax Section on the website or visit a Taxpayer Service CentersDo not use old forms or a different tax period coupon to file a return.  Using incorrect forms will create errors and cause delays in the processing of returns.  You may order replacement books by contacting the Taxpayer Assistance Call Center toll free at 1-877-252-3052.

If I had no employees during the last reporting period, do I need to file a return?

Yes. You should file a zero return and submit the return on or before the due date. See the following question for exception for seasonal employers.

If I have a seasonal business, may I file just for the months that I operate?

An employer who pays employees for six or fewer months during a year may register as a seasonal filer and indicate the months the employees are paid. An employer who is registered as a seasonal filer is not required to file a return for an off-season reporting period in which employees are not paid.

Where do I mail my N. C. withholding tax returns?

N. C. Department of Revenue
P. O. Box 25000
Raleigh, N. C. 27640

You may also file online on the Department’s website.

Where can I get assistance in preparing my withholding tax return?

You can call toll free 1-877-252-3052 or visit one of our Taxpayer Service Centers for assistance.

When completing the withholding tax return, there is no place to enter cents.  How do I complete the form?

Round off the withholding to the nearest dollar amount (example if the withholding was $25.49 then enter $25.00, if it is $25.50 then enter $26.00); however, write the check for the correct amount withheld (example: $25.49 or $25.60).  Do not mark through the pre-printed zeros.

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Online Filing for Withholding

How do I use the online filing services for withholding taxes?

You may file the NC-5 or NC-5P and pay the tax online. If you need assistance call the E-Services Help line at 1-877-308-9103 between the hours of 8:00 to 5:00 Monday through Friday. You cannot file the NC-5Q, quarterly income tax withholding return, and the NC-3, the annual withholding reconciliation return, through on-line filing services.

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Filing Frequency and Due Dates

How do I determine filing frequency and due dates?

If you withhold an average of less than $250 from employee wages each month, you should file a return and pay the withheld taxes on a quarterly basis. The withholding return and payment is due by the last day of the month following the end of the quarter.

If you withhold an average of at least $250 but less than $2,000 from employee wages each month, you should file a return and pay the withheld taxes on a monthly basis. Monthly returns and payments are due by the 15th day of the month following the month in which the tax was withheld. However, the return and payment for the month of December are due by January 31.

If you withhold an average of at least $2,000 or more from employee wages each month, you should file a return and pay the withheld taxes the same time you are required to file the reports and pay the tax withheld on the same wages for federal income tax purposes.  If payroll is made on: Saturday, Sunday, Monday or Tuesday, it is due the following Friday of the same week.  If payroll is made on:  Wednesday, Thursday, or Friday, it is due the following Wednesday.

When is the withholding tax return due if the due date falls on a Saturday, Sunday, or a holiday?

The return is due the first business day following the Saturday, Sunday, or a holiday.

Can the Department of Revenue provide information directly to a payroll service provider (PSP) to verify their client's withholding tax filing frequency?

When taxpayers register for withholding tax, the Department notifies the taxpayer of their filing requirement by letter. The letter indicates the filing frequency the taxpayer was assigned at the time of registration. The Department updates withholding tax filing frequencies once a year, and usually in September sends letters to the affected taxpayers indicating their new filing requirement. The new filing frequency is based on the average amount of withholding tax the taxpayer withheld in a 12 month period that ended on June 30.

The Department is unable to provide verification of a change to a client’s withholding tax filing frequency directly to a PSP. PSPs should contact their clients for withholding tax filing frequency information.


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Employer Requirements

If I purchased an existing business, can I use the previous owner’s withholding identification number?

No, you must register for a new N.C. withholding identification number by completing and submitting Form NC-BR to the N.C. Department of Revenue.

I am presently a proprietorship (partnership).  Do I have to obtain a new withholding identification number if I incorporate?

Yes, you must register for a new N.C. withholding identification number by completing and submitting Form NC-BR to N. C. Department of Revenue.

If I change the trade name of my business, do I need a new withholding identification number?

No. However, you should advise the Department in writing of the details and the date the changes were made.

How do I know how much N. C. income tax to withhold from my employees’ wages (salary)?

Each employee must provide you with a signed N. C. Employee’s Withholding Allowance Certificate, either Form NC-4 EZ or Form NC-4.  You should use these forms along with the tax tables found in the publication, NC-30 to determine how much income tax should be withheld from each employee’s paycheck.

Is N. C. income tax withholding required on pensions and annuities?

Yes. The definitions, provisions, and requirements for federal withholding on pensions from section 3405 of the Internal Revenue Code are applicable to State withholding on pensions. See Individual Income Tax directive PD-00-2 on this website for State withholding requirements for pensions and annuities.

If I have a seasonal business, may I file just for the months that I operate?

An employer who pays employees for six or fewer months during a year may register as a seasonal filer and indicate the months the employees are paid. An employer who is registered as a seasonal filer is not required to file a return for an off-season reporting period in which employees are not paid.

How do I cancel my N. C. withholding tax identification number?

If you go out of business, you should complete the “Out of Business Notification”, Form NC-BN in your pre-printed coupon booklet or download and complete Form NC-BN from the Department’s website.  Within 30 days of the last payment of wages, you should file the annual reconciliation with the departmental copies of the wage and tax statements and give the employees their copies.

How do I cancel my withholding identification number if I no longer have employees?

If you no longer have employees, you should complete the “Out of Business Notification”, Form NC-BN in your pre-printed coupon booklet or download and complete Form NC-BN from the Department’s website.  Within 30 days of the last payment of departmental copies wages, you should file the annual reconciliation with the wage and tax statements and give the employees their copies.   

As an employer can I be held personally liable for withholding taxes I fail to withhold or pay?


Yes   

Does North Carolina use a depository system for income tax withholding like the Internal Revenue Service?

No. Tax withheld must be paid directly to the Department of Revenue when it is due.    

An employee refuses to provide a N. C. Employee’s Withholding Allowance Certificate, either Form NC-4 EZ or Form NC-4.  What should I do?

You must withhold as if he or she is single with no allowances.

As an employer, am I required to determine the correctness of the withholding allowance certificates (Form NC-4 EZ or Form NC-4) furnished to me by my employees?

No. However, if you believe that the amount of allowances claimed by an employee is greater than the amount to which the employee is entitled, you should immediately advise the Department.  If the employee claims more than 10 allowances or claims "exempt" for withholding and the wages normally exceed $200 per week, you must submit a copy of the employee's certificate (Form NC-4 EZ or Form NC-4) to the N. C. Department of Revenue.

 

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Penalties and Assessments

Is there a penalty for failure to pay withholding tax?

Yes, if tax is due.  There is a 10% penalty for late payment of the tax due.  There is also a penalty of 5% per month (max 25%) for failure to file the report when due.

My filing frequency is accelerated and I am submitting my payment late. Do I owe the failure to file penalty?

No. However, a 10% late payment penalty is due along with interest.

I owe withholding tax but I cannot pay the full amount.  Can I set up a payment plan?

Yes.  Call or visit one of our Taxpayer Service Centers for assistance to establish a payment plan.




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Employee Requirements

I am a N. C. resident, but I work in another state.  Is my employer required to withhold N. C. income tax from my wages?

An employee who is a resident of N. C. is subject to N. C. withholding on all of his wages, whether he works in N. C. or in another state.  EXCEPTION: N. C. withholding is not required if the other state in which the employee works requires the employer to withhold income for that state.

I am a nonresident employee of a North Carolina company.  Is my employer required to withhold N. C. income taxes from my wages?

Yes. A nonresident employee is subject to N. C. withholding tax on any part of his wages paid for services performed in this State.

I am trying to file a prior year's individual income tax return but I no longer have my W-2. Can you send me a copy?

No. The North Carolina Department of Revenue does not retain w-2's once an employer's account is in balance. You should contact the employer who issued the w-2 for a duplicate copy.


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Employee Withholding Allowance Certificates

The employee has completed and signed a Federal Allowance Certificate (Form W-4).  Does the employee still have to complete a N. C. Employee’s Allowance Certificates (Form NC-4 EZ or Form NC-4)?

Yes, the Federal Form W-4 is not acceptable.

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Withholding for Personal Services Performed in N.C. by Nonresidents

What are "personal services?"

The term "personal services" is not defined. However, income is generally derived in two ways: selling a product or providing a service. "Personal services" compensation is any compensation paid for providing a service. For purposes of the 4% withholding, the personal services subject to withholding are limited to personal services in connection with a performance, an entertainment or athletic event, a speech, or the creation of a film, radio, or television program.

What constitutes a "speech" for purposes of the 4% withholding?

Any speech that amuses, entertains, or informs is subject to the withholding requirement. This includes instructors at seminars that are open to the public for an admission fee or are for continuing education.

The definition of a nonresident entity refers to foreign limited liability companies, partnerships, and corporations. What does the term "foreign" mean?

The term "foreign" means a limited liability company, partnership, or corporation formed under the laws of any jurisdiction other than North Carolina.


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Exceptions to Withholding

What proof should a venue require from a nonresident limited liability company or corporation that it has obtained a Certificate of Authority from the North Carolina Secretary of State or from a nonresident partnership that it has a permanent place of business in North Carolina?

Corporations and limited liability companies that receive a Certificate of Authority from the Secretary of State are also issued an identification number. This number is different than the business's federal employer identification number. The payer should request that the contractor provide the identification number issued by the Secretary of State and maintain that number in its records. For partnerships, the venue should request that the partnership provide its federal identification number and its North Carolina address and maintain that information in its records.

What evidence should a payer obtain from a contractor that claims to be tax-exempt?

The payer should obtain from the contractor a copy of the contractor's federal determination letter of tax exemption or a letter of tax exemption from the Department of Revenue and maintain that information in its records.

What evidence should a payer obtain from an individual who claims to be a resident of North Carolina?

The payer should obtain the individual's North Carolina address and social security number and maintain that information in its records.

Can a contractor provide an affirmation or other statement that it will satisfy its income tax filing requirement and be exempt from withholding?

No. The only exceptions to withholding are those identified in the Exceptions to Withholding section of Directive PD-98-3. A contractor that qualifies for one of the exceptions to withholding is still subject to North Carolina income tax on the compensation received for services performed in North Carolina and must file the appropriate North Carolina income tax return to report the compensation.

If a contractor qualifies for one of the exceptions from withholding, does the payer still issue a Form NC-1099PS to the contractor and to the Department of Revenue?

No. Form NC-1099PS is only required if North Carolina tax is withheld from the compensation.

Can a contractor provide a statement or evidence to show that the 4% withholding will be in excess of its tax liability?

No. Any excess withholding will be refunded upon the filing of an income tax return showing an overpayment of tax.



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Contract Between Venue and Entertainer

Is a reimbursement for business expenses or a business expense allowance included in compensation and subject to withholding?

Pursuant to Treasury Regulation § 1.274-5T(h), the payment of business expenses through a reimbursement or other expense allowance arrangement is excludable from income by a contractor if the expenses are substantiated to the payer by the contractor under an accountable plan. "Business expenses" means ordinary and necessary expenses for travel, transportation, and entertainment that are deductible under Internal Revenue Code section 162. To be properly substantiated under an accountable plan, the reimbursement must be paid only if receipts are furnished to substantiate the expenses or the expenses are allowed under an acceptable per diem arrangement. Those reimbursed or direct-billed business expenses that are not taxable pursuant to the above-cited regulation because they have been properly substantiated are not subject to the 4% withholding.

If the venue pays business expenses directly instead of reimbursing the contractor, is the amount paid subject to withholding?

No, to the extent the expenses qualify as business expenses under Code section 162.

Is compensation paid to contract labor working at an athletic or entertainment souvenir sales operation subject to withholding?

Yes, if the contract laborer is a nonresident and the compensation exceeds $1,500. The definition of contractor includes compensation for personal services in connection with a performance, etc. Services performed by the contract laborer at the souvenir sales operation are in connection with the event.

A venue signs a $10,000 contract with a performer in 2013 for a performance scheduled for 2014. The venue is required to place $2,000 in an escrow account held by the performer's agent at the time the contract is signed. How much withholding is required in each year?

No withholding is required in 2013 because the compensation for performing services in North Carolina was not paid during that year. Amounts held in escrow are not considered received until released from escrow. The venue must withhold $400 ($10,000 X 4%) in 2014 when the services are performed and the compensation is paid.



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Contract Between Venue and Promoter (Agent)

If a venue contracts with a promoter to find an entertainer and the venue enters into a separate contract with the performer, is the compensation paid to the promoter by the venue subject to withholding?

No, unless the promoter physically performed services in North Carolina.

If a venue contracts with a promoter to find an entertainer and the promoter enters into a contract with the performer, is the compensation paid to the promoter by the venue subject to withholding?

The answer depends on whether the promoter is an entity or an individual. If the promoter is an entity, tax must be withheld because the entity is deemed to be doing business in North Carolina through its agent (the entertainer). If the promoter is an individual, tax is only required to be withheld from the payment to the promoter to the extent the promoter performed services in North Carolina.

If a venue contracts with a promoter to find an entertainer and the promoter enters into a contract with the entertainer, who is responsible to withhold tax from the compensation paid to the entertainer?

The promoter is responsible to withhold from the compensation paid to the entertainer because the entertainer is providing a personal service for the promoter.

Can a promoter that is responsible for withholding from the compensation paid to an entertainer contract with the venue to withhold the tax?

The Department of Revenue has no objection to a venue satisfying a promoter's withholding responsibility if the venue is willing to accept that responsibility. However, the promoter is the entity required by law to withhold the tax and could be pursued by the Department of Revenue for collection if the tax is not withheld or is withheld but not remitted to the Department by the venue. A contractual provision between the promoter and venue shifting the responsibility to the venue is not binding on the Department since the Department is not a party to the contract.

A promoter rents a facility from a venue and contracts with a nonresident entertainer. The venue sells tickets to the event and deducts the rent and other fees and expenses from the gross ticket proceeds before payment to the promoter. On what amount is withholding required?

No withholding is required from the ticket proceeds paid to the promoter because the promoter is not providing a personal service for the venue. The promoter is required to withhold from the compensation paid to the entertainer because the entertainer is providing a personal service in North Carolina for the promoter.





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Withholding for Services Performed in N.C. by ITIN Contractors

Who is an ITIN Contractor?

An ITIN contractor is an ITIN holder who performs services in North Carolina for compensation other than wages. An ITIN holder is a person whose taxpayer identification number is an Individual Taxpayer Identification Number (ITIN). An ITIN is issued by the IRS to a person who is required to have a taxpayer identification number but does not have and is not eligible to obtain a social security number.

Can I complete federal Form 1099-MISC in lieu of state Form NC-1099-ITIN?

Yes, provided federal Form 1099-MISC reflects the North Carolina tax withheld.

Where can I find more information concerning withholding for services performed in N.C. by ITIN Contractors?

Further information is available on page 7 of Publication NC-30.


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Military Spouses Residency Relief Act of 2009

What is the Military Spouses Residency Relief Act of 2009?

Important Tax Information Regarding Spouses of United States Military Servicemembers

What tax years are affected by the Military Spouses Residency Relief Act of 2009?

The Act applies to tax years beginning on or after January 1, 2009.

Under what conditions is the income received for services performed in North Carolina by the spouse of a servicemember exempt from North Carolina income tax and withholding tax?

Effective for tax years beginning in 2009, the income earned for services performed in North Carolina by the spouse of a servicemember who is legally domiciled in a state other than North Carolina is exempt from North Carolina income tax if (1) the servicemember is present in North Carolina solely in compliance with military orders; (2) the spouse is in North Carolina solely to be with the servicemember; and (3) the spouse is domiciled in the same state as the servicemember. All three conditions must be met to qualify for exemption.

Is the spouse of a servicemember required to pay North Carolina income tax and have North Carolina tax withheld on income earned for services performed in North Carolina if the servicemember was stationed in a state other than North Carolina?

Yes, because all three conditions above would not have been met.

The spouse of a servicemember has met the conditions to qualify for the exemption. However, the servicemember has been temporarily assigned to a combat zone. Can the spouse continue to exempt all income earned for services performed in North Carolina?

Yes, if the servicemember’s assigned duty station remains North Carolina.

What information must a servicemember’s spouse provide to the employer to qualify for exemption from North Carolina withholding tax?

The spouse must complete Form NC-4 EZ, Employee’s Withholding Allowance Certificate, certifying that the spouse is not subject to North Carolina withholding because the conditions for exemption have been met. The spouse certifies the state of domicile and attaches a copy of the spousal military identification card and a copy of the servicemember’s most recent leave and earnings statement to Form NC-4 EZ.

For how long is Form NC-4 EZ effective?

If claiming exemption from withholding, the certificate is effective for one calendar year and a new certificate must be completed and given to the employer by December 1 to maintain exempt status for the following tax year. If a new Form NC-4 EZ is not provided by December 1, the employer is required to withhold based on single status with zero allowances. If, during the year, the spouse no longer meets the requirements for exemption on line 4, the spouse must complete a new Form NC-4 EZ.

The spouse of a servicemember has met the conditions to qualify for the exemption. However, the servicemember is transferred to another state in compliance with military orders and the spouse does not move to the other state. Do the wages of the spouse remain exempt from withholding?

No. The spouse must complete a new Form NC-4 EZ because the spouse no longer meets the conditions to qualify for exemption from withholding. Any other income earned by the spouse for services performed in North Carolina is subject to North Carolina income tax.

The servicemember is domiciled in another state but earns non-military income while stationed in North Carolina. Is the non-military income subject to North Carolina income tax and withholding tax?

Yes. Income received by a servicemember from non-military employment is subject to North Carolina income tax and withholding tax. In addition, income received from North Carolina sources attributable to the ownership of any interest in real or tangible personal property in North Carolina or derived from a business, trade, profession, or occupation carried on in North Carolina, or is derived from gambling activities in North Carolina is subject to North Carolina income tax.



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North Carolina State Lottery Winnings

Is State tax required to be withheld on winnings paid by the North Carolina State Lottery Commission?

Winnings of $600 or more paid by the North Carolina State Lottery Commission are subject to State withholding at the rate of 5.8% (5.75% for taxable years beginning on or after January 1, 2015).

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Miscellaneous

What is “SUTA”?

"SUTA" is short for State Unemployment Tax Act. All benefits and administrative costs of the unemployment insurance program are paid by employers through State Unemployment Tax Act (SUTA) and the Federal Unemployment Tax Act (FUTA) payments. No money is withheld from workers' checks to pay for unemployment benefits. Additional information about the State Unemployment Tax Act may be found on the Employment Security Commission of NC website.

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