January 24, 2018
North Carolina 2018 income tax withholding tables available, Form W-2/1099 filing reminders
The North Carolina Department of Revenue released the 2018 state income tax withholding tables and guide to its website.
Effective January 1, 2017, a 2015 legislative change (Session Law 2015-241) lowered the state income tax rate to 5.499%, down from 5.75%. The new law also requires North Carolina income tax withholding at a rate 0.1% higher than the individual income tax rate; therefore, the withholding rate on wages paid on or after January 1, 2018, will continue to be 5.599%.
Supplemental income tax withholding
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:
— Withhold a flat 5.599%, or
— 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).
Employees may need to submit a new Form NC-4 for 2018
As we reported previously, a provision within the Appropriations Bill of 2017 (SB 257, Session Law 2017-57) converted North Carolina's child tax credit to a child deduction. This new deduction varies based on a taxpayer's filing status and adjusted gross income (AGI). The "Child Deduction Amount" expands the number of taxpayers who may benefit by increasing the AGI limits and by providing five deduction amounts, as opposed to the previous two credit amounts. The change did not result in revisions to the withholding tables and formulas, but required adjustments to the allowance worksheets and tables for Form NC-4, Employee's Withholding Allowance Certificate, and Forms NC-4EZ, NC-4 NRA, and NC-4P.
Employers are not required to obtain a new Form NC-4, NC-4EZ, or NC-4P from each employee or pension recipient because of the conversion of the child tax credit to a child deduction; however, are asked by the Department to inform their employees and pension recipients of the change and encourage them to review the number of allowances they claimed in 2017 to determine if the number should be adjusted. An employee or pension recipient could either be entitled to an additional allowance or lose an existing allowance because of this law change.
2017 Form W-2/1099 electronic filing requirement
As we reported previously, the Department is again automatically waiving the requirement that employers file calendar year 2017 Forms W-2, 2099, and NC-3, Annual Withholding Reconciliation, electronically with the Department. This is an automatic waiver; employers need not file a request with the Department. This does not, however, excuse the employer from filing these forms on paper, electronically or on CD, by January 31, 2018. Failure to file by January 31, 2018 will result in a $50 penalty per form. (G.S.105-236(a)(10)c.)
Employers that are able to file 2017 Forms W-2, 1099, and/or NC-3 electronically or on CD by the January 31, 2018 deadline should do so. The 2017 Form W-2/1099 CD specifications are available here.
The Department has established a web page that provides information about the electronic filing options for Form NC-3 and Forms W-2/1099.
Income tax withholding rate to decrease for tax year 2019
As we reported previously, Session Law 2017-57 will lower the individual income tax rate from the current 5.499% to 5.25%, effective for taxable years beginning on or after January 1, 2019. North Carolina law (G.S. 105-163.2(b)(1) ) requires that the withholding tax rate be 0.1% higher than the income tax rate in effect. As a result, effective January 1, 2019, the income tax withholding rate will be 5.35%, down from 5.599%.
The legislation also increased the standard deduction for each filing status, effective for taxable years beginning on or after January 1, 2019.
The Department will issue revised income tax withholding tables and formulas in late 2018 that reflects the change in the withholding tax rate and standard deductions beginning January 1, 2019.
It is presumed that the supplemental withholding rate will also decrease to 5.35%, down from the current 5.599%.
See the Department's guidance for more information on the withholding tax changes.
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