North Carolina 2020 withholding tables and guide released; Form NC-4 update; 2019 Forms W-2/1099 filing reminders (2024)

The North Carolina Department of Revenue released its 2020 revised income tax withholding tables and guide. The revised income tax withholding tables and formulas reflect changes in the standard deductions beginning January 1, 2020. (Publication NC-30, 2020 Income Tax Withholding Tables and Instructions for Employers.)

North Carolina Session Law 2019-246 (SB 557) increased the amount of the North Carolina standard deduction available to taxpayers based on their individual filing status. This change resulted in revisions to the Formula Tables for Percentage Method Withholding Computations and Annualized Method Withholding Computations in Section 27 of Publication NC-30, as well as the Wage Bracket Tables in Section 28.

Forms NC-4, NC-4 NRA, and NC-4P were also revised for 2020 to account for changes to the standard deduction amounts.

State Form NC-4 must be submitted by employees

Each new employee must complete and submit to their employer a North Carolina Form NC-4, Employee's Withholding Allowance Certificate (or equivalent Form NC-4 EZ or Form NC-4 NRA, Nonresident Alien Employee's Withholding Allowance Certificate), in addition to federal Form W-4.

The current Form NC-4 is available here.

Supplemental withholding rate

The supplemental withholding rate continues at 5.35% for 2020.

If you pay supplemental wages separately (or combine them with regular wages in a single payment and specify the amount of each), the income tax withholding method depends in part on whether you withhold income tax from your employee's regular wages. If you withhold income tax from an employee's regular wages, you can use one of these methods for the supplemental wages:

1. Withhold a flat 5.35%
2. Add the supplemental and regular wages for the most recent payroll period this year. Then figure the income tax as if the total were a single payment. Subtract the tax already withheld from the regular wages. Withhold the remaining tax from the supplemental wages.

If you did not withhold income tax from the employee's regular wages, use method (b).

Forms W-2 for calendar year 2019 must be filed electronically or on paper by January 31, 2020

North Carolina law requires that all employers file Forms NC-3, W-2 and 1099 electronically by the January 31 due date.

The Department has again elected for calendar year 2019 to automatically waive the failure-to-file electronically penalty for Forms NC-3, W-2 and 1099. However, for calendar year 2019, the Department will impose the $50 per-day (up to $1,000) failure-to-timely-file penalty on returns not filed electronically or on paper by January 31, 2020.(Important notice, changes to filing requirements for Form NC-3 for tax year 2019; EY Payroll Newsflash Vol. 20, #145, 9-18-2019.)

Requirement to file certain Forms 1099-MISC waived

A waiver from the requirement that a payer file Forms 1099-MISC for calendar year 2019 is waived if the form does not report that the payer withheld North Carolina state income tax. The reason given for the waiver is that certain software vendors do not provide adequate support for the electronic filing of Forms 1099-MISC.

As a result, notwithstanding the provisions of Administrative Rule 17 NCAC 06C.0203, for calendar year 2019 the Department will not require taxpayers to submit a paper or electronic copy of any Form 1099-MISC to the Department that does not report North Carolina income tax was withheld. Note, however, that Forms 1099-MISC reporting that North Carolina income tax was withheld must be filed with the Department as a part of a payer's annual report filing requirement.

This differs from the federal requirement that Forms 1099-MISC with nonemployee compensation shown in box 7 be filed electronically by January 31, whether or not federal income tax was withheld.

Income tax withholding required on certain nonemployee compensation payments

In a recent directive and effective January 1, 2020, the Department will require income tax withholding of 4% from payments made to nonresident contractors and certain nonemployee compensation payments where a taxpayer identification (TIN) or individual taxpayer identification number (ITIN) is not available. (EY Payroll Newsflash Vol. 20, #171, 10-22-2019.)

The directive reflects changes that were enacted to North Carolina law as part of Session Law 2019-169 (SB 523).

The North Carolina income tax withholding requirement applies to:

• A nonresident contractor
• An Individual Taxpayer Identification Number (ITIN) contractor; the withholding requirement applies not only to a person whose taxpayer identification number is an ITIN, but also to a person who has applied for an ITIN number and a person whose ITIN number has expired
• A person who performs services in North Carolina who fails to provide the payer with a TIN
• A person who performs services in North Carolina for compensation who provides an invalid TIN to the payer; if the Department notifies a payer that a payee's TIN is not valid, the withholding requirement applies to any compensation paid to that payee on or after that date

The North Carolina income tax withholding requirement applies when the payee is expected to be paid more than $1,500 during the calendar year. Tax is not required to be withheld from a payment of compensation to a payee if the payment is $1,500 or less and, at the time the payment is made, the payer does not believe that the total compensation to be paid to the payee during the year will exceed $1,500. If additional compensation paid to the payee later in the year causes total compensation for the year to exceed $1,500, the payer is not required to withhold tax from the additional compensation to make up for the compensation from which no tax was withheld.

The requirement to withhold North Carolina income tax from nonemployee compensation does not apply to:

• A corporation or limited liability company that has obtained a certificate of authority from the Secretary of State
• An entity that is exempt from North Carolina corporate income tax under G.S.105-130.11, including any organization that is exempt from federal income tax under the Internal Revenue Code
• A partnership if the partnership has a permanent place of business in North Carolina
• Compensation paid to an individual who is an ordained or licensed member of the clergy
• Compensation paid to an ITIN holder who is temporarily admitted to the US to perform agricultural labor or services under an H-2A visa and who is not subject to federal income tax withholding under IRC Section 1441

At the end of each calendar year, a payor who withholds North Carolina income tax from a payee's compensation must prepare and give each payee new North Carolina Form NC-1099M that reports the total compensation paid to the payee and the North Carolina income taxes withheld during the calendar year.

A payer must annually file Form NC-3, Annual Withholding Reconciliation, and new North Carolina Form NC-1099M with the Department.

New Form NC-1099M has not yet been released by the Department; when released, it will be available here. Federal Form 1099-MISC or federal Form 1099-NEC may be filed in lieu of Form NC-1099M, provided it shows the North Carolina income tax withheld.

For more information on state withholding tax, see the Department's website and the Department's 2019 Personal Tax Bulletin.

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