The North Carolina Department of Revenue recently announced that employers failing to file calendar year 2017 Forms NC-3, Annual Withholding Reconciliation, and corresponding Forms W-2 and/or 1099 by the January 31, 2018, filing deadline will not be assessed the $50 failure-to-file penalty.

The waiver of penalty is automatic (no need to request the waiver) if the employer files the forms by the former filing deadline of February 28, 2018. (Telephone conversation, Department representatives, February 12, 2018.)

Department waived the failure-to-file penalty for calendar year 2016, due in 2017

As we reported previously, under 2015 Session Law 2015-259, the Department is required to assess a $50 penalty against an employer that fails to file an information return with the Department by the date the return is due. The penalty was effective for tax years beginning on or after January 1, 2016; however, the Department elected to automatically waive the failure-to-file penalty for calendar year 2016 Forms NC-3, W-2 and 1099 due to be filed by January 31, 2017, but which were filed after that date.

The Department had announced that it would begin imposing the failure-to-file penalty on calendar year 2017 Forms NC-3, W-2 and 1099 due to be filed on January 31, 2018 if not filed timely. The Department has now extended the waiver of the penalty to calendar year 2017 forms that were due on January 31, 2018.

Details of the waiver

The Department is extending the deadline to file Forms NC-3, W-2 and 1099 because it continues to receive questions on what forms need to be filed with the Department, as follows:

Q 1: Is there a requirement to file Form 1099-MISC directly with the Department if the payer has not withheld North Carolina income tax from the recipient?

A 1: Form NC-3 must be filed together with all state copies of Forms 1099-MISC, 1099-R, 1099-PS, 1099-ITIN (along with Forms W-2, W-2G and 1042-S), whether or not federal and/or state income tax has been withheld and reported on the form. Other reports of 1099 information (interest, rents, premiums, dividends) shall not be filed with North Carolina unless the payments have not been reported to the IRS.

With respect to Forms 1099-MISC, a payee must file Form 1099-MISC directly with the Department if either of the following conditions are met:

(1) Box 16 (State tax withheld) is populated and North Carolina income tax has been withheld, or

(2) Either Box 3 (Other income) or Box 7 (Nonemployee compensation) is populated and the recipient's address is located in North Carolina.

Q 2: If the employer has already filed the calendar year 2017 Form NC-3 along with Forms W-2, should the employer send a second Form NC-3 to the Department along with copies of any Forms 1099 that were not filed?

A 2: No, the employer should not send a second NC-3 or NC-3X as a cover page with the Forms 1099. Instead, the employer should submit the required Forms 1099 either by using the Department's eNC3 electronic filing portal or by mailing paper copies to the Department. If submitting on paper, include a cover statement that identifies the business' name, federal ID number, state ID number (if available), and a statement that an original Form NC-3 has been previously filed.

Q3: Must the state copies of Forms 1099 be filed with the Department even though North Carolina receives this information directly from the IRS under the 1099 combined federal/state filing program, and state tax was not withheld from any 1099?

A3: Yes, state law and regulations require that all Forms 1099-MISC, 1099-R, 1099-PS, 1099-ITIN must be filed with the Department.

Forms NC-3, W-2 and 1099 may be filed on paper

Although state law and regulations require that Forms NC-3, W-2 and 1099 be filed with the Department in an electronic format by January 31, the law allows the Department to waive the electronic filing requirement.

As we reported previously, as was the case for calendar year 2016 forms due by January 31, 2017, the Department automatically waived the electronic filing requirement for calendar year 2017 forms due by January 31, 2018.

Employers that cannot meet the electronic submission requirement may mail calendar year 2017 Forms NC-3, W-2, and 1099 to the Department by February 28, 2018 at the following address:

North Carolina Department of Revenue
PO Box 25000
Raleigh, NC 27640–0001

For further information, contact the Department at +1 877 252 3052 or send an email to eNC3@ncdor.gov. See also Publication NC-30, Withholding Tables and Instructions, updated for calendar year 2018.

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