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 Centers or 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 Centers. Do 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. |
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. |
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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, 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. |
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, 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) 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) 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 (with a minimum
of $5.00) 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? |
| 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 2012 for a performance
scheduled for 2013. 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 2012 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 2013 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. |
|
| 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 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, 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. |
For how long is Form NC-4 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 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. |
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 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 7%. |
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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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Last modified on:
01/03/13 03:42:59 PM.
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