North Carolina issues 2019 withholding tables

North Carolina has issued withholding tables for wages paid on and after January 1, 2019. The tables have been revised to reflect legislative changes. North Carolina law requires North Carolina income tax to be withheld from wages at a rate that is 0.1% higher than the individual income tax rate, which has been changed to 5.25%. Therefore, the withholding rate on wages paid on or after January 1, 2019, will be 5.35%.

All of the tables are reproduced in in this Report at ¶7588 and ¶7589. The percentage method tables are reproduced in this Report Letter on pages 21—24.

Legislative changes

Session Law 2017-57 included a provision to lower the income tax imposed on individuals from 5.499% to 5.25%. This legislation also increased the amount of the North Carolina standard deduction available to taxpayers based on their individual filing status. These changes resulted in revisions to the Formula Tables for Percentage Method Withholding Computations and Annualized Method Withholding Computations in Section 28, as well as the Wage Bracket Tables in Section 29. Forms NC-4, NC-4 NRA, and NC-4P were also revised to account for changes to the individual income tax rate and standard deduction amounts.

Session Law 2018-5 amended the definition of “wages” under G.S. 105-163.1(13) for North Carolina income tax withholding purposes. Effective June 12, 2018, “wages” has the same meaning as defined under Internal Revenue Code section 3401. Before this change, reimbursements made by an employer to an employee for ordinary and necessary expenses incurred by the employee on behalf of the employer and in the furtherance of the business of the employer were excluded from the definition of wages and therefore not subject to North Carolina income tax withholding. With the change, such reimbursements are included in the definition of wages and are subject to North Carolina income tax withholding.

Session Law 2018-5 rewrote the federal corrections provisions applicable to North Carolina income tax withholding returns under G.S. 105-163.6A. Under the new provisions, when a taxpayer voluntarily files an amended federal return with the Internal Revenue Service that contains adjustments that increase the amount of the taxpayer’s North Carolina tax liability, the taxpayer must file a State amended return with the Department within six months of filing the federal amended return. If an adjustment decreases the amount of a taxpayer’s North Carolina income tax liability, the taxpayer may file a State amended return within the statute of limitations for refunds. The changes are effective June 12, 2018, and apply to federal amended returns filed on or after that date. For additional details, see Section 21.

Session Law 2018-5 amended G.S. 105-163.7 to change the due date for filing Form NC-3 when an employer goes out of business or stops paying wages. Effective June 12, 2018, if an employer terminates its business or stops paying wages during the taxable year, the employer must file Form NC-3 within thirty days of the last payment of remuneration.

Session Law 2018-5 amended G.S. 105-236(a)(10) to subject a taxpayer to a penalty of $50 per day, up to a maximum of $1,000, for failure to file certain informational returns with the Secretary by the date the informational returns are due. In addition, the General Assembly created a new $200 penalty for failure to file informational returns in the format prescribed by the Secretary. These penalties are applicable to Form NC-3 required to be filed with the Department on or after June 12, 2018. A taxpayer may request a waiver of an informational return penalty by submitting Form NC-5501, Request for Waiver of an Informational Return Penalty. For additional details, see Section 25.

Session Law 2018-5 amended G.S. 105-251.2(d) and G.S.105-236(a) (10), the result of which is that “payment settlement entity” is subject to the informational return penalties provided in G.S. 105-236(a) (10) including the penalty for failure to file in a format prescribed by the Secretary. Previously, under G.S. 105-251.2(d), a “payment settlement entity” that failed to timely file the 1099K information return with the Department was subject to a penalty of $1,000. This change is effective for 1099K information returns required to be filed with the Department on or after June 12, 2018. (North Carolina Department of Revenue, (2019 Income Tax Withholding Tables and Instructions for Employers (Pub. NC-30, Revised 11-18.)

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