The North Carolina Department of Revenue released the 2019 income tax withholding tables and guide. The revised income tax withholding tables and formulas reflect the changes in the withholding tax rate and standard deductions beginning January 1, 2019. (Form NC-30, 2019 Income Tax Withholding Tables and Instructions for Employers.)

History

As we previously reported, Session Law 2017-57 lowers 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.

Supplemental withholding rate decreasing

The supplemental withholding rate will also decrease to 5.35% as of January 1, 2019, down from 5.599% for 2018.

The legislation explains that "[i]f 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%, or
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)."

Law changes various income tax withholding requirements

As we reported previously, the Department recently issued a notice addressing several changes in law that affect income tax withholding for 2018 and 2019.

The notice advises of the following changes:

• Decrease in the flat income and withholding tax rate and increase in the state standard deduction for 2019
• Change to the definition of wages for withholding purposes
• Reinstatement of the due date for filing Forms NC-3/W-2 when a business is terminating
• Imposition of penalties for failure to timely and accurately file information returns
• New requirement to file a state amended return when voluntarily filing one with the IRS

See EY Payroll Newsflash Vol. 19, #174, 10-24-2018 for more details.

Forms W-2 for calendar year 2018 must be filed electronically by January 31, 2019

Beginning with calendar year 2018, all employers must file Forms NC-3, W-2 and 1099 electronically by January 31 of the following year (i.e., January 31, 2019 for 2018). 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. However, for calendar year 2018, the Department will impose the $50 failure-to-timely-file penalty on returns not filed by the January 31 due date and a new penalty on those not filed electronically.

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. Session Law 2018-5, effective June 12, 2018, will subject employers to an additional 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) and impose a new $200 penalty for failure to file informational returns electronically.

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.

For more information on North Carolina withholding taxes, see the Department's website.

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