State
Income Tax Withholding Requirement
for
Non-Wage Compensation
|
Question
|
Non-Resident Individual
|
Non-Resident Entity
|
| Who does the State withholding requirement apply to? |
The withholding requirement applies to individuals
who do not reside in North Carolina. |
The withholding requirement applies to nonresident
entities which are defined as:
- a foreign limited liability company
- a foreign limited partnership or a general partnership
formed under the laws of any jurisdiction other
than NC
- a foreign corporation
|
| What types of payments are subject to withholding? |
Non-wage compensation payments for services performed
in connection with a performance, a speech, an entertainment
or athletic event, the creation of a film, radio, or
television program. |
Non-wage compensation payments for services performed
in connection with a performance, a speech, an entertainment
or athletic event, the creation of a film, radio, or
television program. |
| Are all personal services subject to withholding?
|
Withholding is required only if the compensation is
expected to exceed $1500 during the calendar year for
services performed in North Carolina. The "duty day"
method should be used to allocate compensation for services
performed both in NC and other states. Refer to the
explanation regarding the "duty day" allocation method
below this table. |
Withholding is required only if the compensation is
expected to exceed $1500 during the calendar year for
services performed in North Carolina. The "duty day"
method should be used to allocate compensation for services
performed both in NC and other states. Refer to the
explanation regarding the "duty day" allocation method
below this table. |
| What is the State income tax rate for these payments?
|
4% of non-wage compensation amount. |
4% of non-wage compensation amount. |
| What is the effective date for the withholding requirement?
|
January 1, 1998 for all personal services. |
January 1, 1998 for all personal services. |
| Are there any exceptions to the withholding requirement
from those who reside or are organized in another state?
|
Yes. Payments to ordained or licensed members of the
clergy are not subject to withholding. |
Yes. Tax is not withheld from:
- A limited liability company that has obtained
a Certificate of Authority from the NC Secretary
of State.
- A limited partnership that has a permanent place
of business in NC.
- A corporation that has obtained a certificate
of authority from the NC Secretary of State.
- A Non-Profit Corporation who provides a copy of
their exempt status determination letter from the
IRS, and a letter certifying that the income to
be received is not "Unrelated Business Income."
|
| How can a Certificate of Authority be obtained? |
A Certificate of Authority does not apply to individuals.
|
A Certificate of Authority does not apply to partnerships
or non-profit corporations. A limited liability company,
subchapter S, or C corporation may obtain an application
for a certificate of authority by:
- writing to the Secretary of State, Corporations
Division, 300N. Salisbury Street, Raleigh NC 27603-5909
- faxing the Secretary of State at 919-733-1837,
- downloading from the Secretary of State's website
at http://www.state.nc.us/secstate/
|
| How does a nonresident document that they have an
exception to the withholding requirement? |
Withholding is not required if individuals provide
the University with their NC address and social security
number. |
Withholding is not required if:
- a limited liability company provides its corporate
identification number from the Secretary of State.
- a limited partnership provides its NC address
and Federal tax identification number.
- a corporation provides its corporate identification
number obtained from the Secretary of State.
- a non-profit corporation provides its IRS determination
letter, and a letter certifying that income received
is not unrelated business income.
|
| Who will report the tax information to nonresident
contractors and Federal and State tax officials? |
Accounts Payable will issue a Federal form 1099-MISC
by each January 31 to report the non-wage compensation
amount and tax withholdings for University funds. Tax
reporting for funds of affiliated organizations will
be the responsibility of the affiliated organization.
|
Accounts Payable will issue a Federal form 1099-MISC
by each January 31 to report the non-wage compensation
amount and tax withholdings for University funds. Tax
reporting for funds of affiliated organizations will
be the responsibility of the affiliated organization.
|
| Explanation: A "duty day" is any
part of a day in which an activity connected with the
service is performed. The non-resident contractor's
compensation which is subject to withholding is determined
by allocating the total compensation to the duty days
spent in NC rendering services and to the duty days
spent outside NC rendering services. For example, assume
a nonresident corporation contracts for $10,000 to provide
an architectural design for a University building being
constructed. The corporation's representative spends
1 day on campus to view the construction site and discuss
potential designs, spends 8 days outside NC drawing
the designs, and 1 day on compus presenting the designs.
The amount of withholding would be $80.00 which represents
4% of $2000.00. The amount of $2000.00 is subject to
withholding since 2 days were spent in NC at a fee rate
of $1,000 per day. The vendor will need to indicate
on the invoice the number of duty days in NC and outside
of NC. The absence of such information will necessitate
withholding on the entire amount. |
