September 7, 2021
North Carolina will impose penalty for failure to electronically file 2021 annual withholding return and Forms W-2; other changes apply to reporting of Forms 1099-MISC and 1099-NEC
The North Carolina Department of Revenue issued a notice concerning the following changes that will apply to the filing of the 2021 annual reconciliation return and information statements.
Penalties for failure to file Forms NC-3 and W-2 electronically
Under the law, Form NC-3, Annual Withholding Reconciliation, together with state copies of Forms W-2 and 1099, must be filed electronically via the Department's eNC3 on or before January 31 of the succeeding year. An employer that fails to file electronically in a format prescribed by the Department can be assessed an information-return penalty of $200 per filer (N.C. Gen. Stat. Section 105-236(a)(10)(d)).
Previously, the Department indefinitely waived the penalty for failure to electronically file because certain software providers were not able to provide taxpayers with support. However, for tax year 2021 (due on or before January 31, 2022) the Department will now impose the penalty for failure to electronically file Form NC-3 and copies of Forms W-2 and 1099.
A taxpayer may request a waiver of the Informational Return Penalty by submitting Form NC-5501, Request for Waiver of an Informational Return Penalty.
Specifications for filing Form NC-3, W-2 and 1099 information electronically is available here
Filing of Forms 1099-MISC and 1099-NEC
The Department announced that taxpayers are not required to submit a copy of a federal Form 1099-MISC or federal Form 1099-NEC (collectively "federal statements") when the taxpayer files Form NC-3 if the federal statements do not report North Carolina income tax withheld. This waiver will continue until further notice.
Two account numbers allowed for filing Forms W-2 and 1099
The 2021 Publication NC-30 states that if a payer withholds state income taxes from (1) wages paid to employees and (2) compensation paid to payees, the payer must use one North Carolina withholding identification number to report the state income tax withheld from both categories.
The Department states that, beginning January 1, 2022, for ease of filing it will allow a payer to obtain a second North Carolina withholding identification number to report state income tax withheld from compensation and another for state income tax withheld from payments to nonemployees.
A payer who wishes to obtain a second withholding identification number must submit a completed business registration application, Form NC-BR, Business Registration Application for Income Tax Withholding, Sales and Use Tax, and Other Taxes and Service Charge. Form NC-BR can be obtained electronically or by mail.
EY Payroll News Flash