24 October 2018 North Carolina law changes various income tax withholding requirements; revised withholding tables to be issued for 2019 The North Carolina Department of Revenue issued a notice addressing several changes in law?that affect income tax withholding for 2018 and 2019.
As we previously reported, 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%. (EY Payroll Newsflashes Vol. 18, #158, 9-21-2017; Vol. 19, #026, 1-24-2018 and #050, 2-21-2018.) The legislation also increased the standard deduction for each filing status, effective for taxable years beginning on or after January 1, 2019. The supplemental withholding rate will also decrease to 5.35% from the current 5.599%, as of January 1, 2019. The Department will issue revised income tax withholding tables and formulas (Form NC-30, 2019 Income Tax Withholding Tables and Instructions for Employers) in late 2018 that reflect the changes in the withholding tax rate and standard deductions beginning January 1, 2019. Recently enacted legislation (Session Law 2018-5), effective June 12, 2018, changes the definition of "wages" to mean the same 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 if they are included in wages for federal income tax purposes. As we previously reported, 2015 Session Law 2015-259 changed the deadline for filing Forms W-2 with the Department to January 31, effective with calendar year 2015, due January 31, 2016. (EY Payroll Newsflash Vol. 265, 10-5-2015.) An unintended consequence of the legislation was to remove the requirement that closing businesses file Forms NC-3 and W-2 within 30 days of the last payment of wages. Effective June 12, 2018, Session Law 2018-5 reinstates the requirement for closing businesses to file final withholding returns within 30 days of going out of business. As we reported previously, under 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 and in the required electronic format. The penalty was effective for taxable years beginning on or after January 1, 2016; however, the Department elected for calendar years 2015–2017 to automatically waive the failure-to-file electronically penalty for Forms NC-3, W-2 and 1099. Session Law 2018-5, effective June 12, 2018, will subject employers to a penalty of $50 per day, up to a maximum penalty of $1,000, for failure to file Forms NC-3, W-2 and 1099 by the date the returns are due (January 31). In addition, the legislation created a new $200 penalty for failure to file informational returns electronically. As a result, beginning with calendar year 2018 Forms NC-3, W-2 and 1099 due to be filed on January 31, 2019, the Department will impose the failure to timely file penalty on returns not filed by the January 31 due date. And, the Department will impose the new penalty for failure to file electronically and include all required statements with the electronic submission. An employer may request a waiver of an informational return penalty by submitting new (and currently under development) Form NC-5501, Request for Waiver of an Informational Return Penalty. Employers should not instead submit Form NC-5500, Request to Waive Penalties. Form NC-5501 will be available on the Department's website in early 2019. Under Session Law 2018-5, effective June 12, 2018, an employer that voluntarily amends or corrects federal employment tax returns, and the adjustments increase the amount of the North Carolina income tax withholding, must file the applicable North Carolina Form NC-5X, Form NC-5Q, or Form NC-3X including the corrected federal Forms W-2, W-2C, or 1099 with the Department within six months of filing the federal amended returns. If a federal adjustment decreases the amount of the employer's North Carolina income tax withholding liability, the taxpayer may file state amended returns within the statute of limitations for refunds. For more information on North Carolina withholding taxes, see the Department's website.
Document ID: 2018-2124 | |||||||||
