Every business that hires and pays employees must be capable of withholding certain taxes from their employees’ compensation. In addition, there are taxes that each business must pay that are based on their employees’ compensation. And finally, the business is required to report employee compensation and taxes to the appropriate government agencies.
A previous article discussed the requirements and procedures for federal taxes, including the obtaining of a Federal Employer Identification Number (EIN). However, in addition to the federal requirements, every business must also meet certain state and local requirements. This article will discuss these requirements in the State of North Carolina.
What Are the Employee-Related Requirements in North Carolina for a New Business?
Every new business in North Carolina must be capable of meeting the following requirements:
- Withhold North Carolina State Income Tax
- Pay North Carolina Unemployment Tax
- Report all new hires to the North Carolina Department of Health and Human Services, North Carolina Child Support Enforcement.
- Provide Workers Compensation Insurance Coverage
North Carolina State Income Tax
Before a business can withhold the North Carolina State Income Tax (SIT) from employees’ compensation, it must first register with the North Carolina Department of Revenue (DOR) and obtain a withholding identification number. The employer must complete Form NC-BR, Business Registration Application for Income Tax Withholding, Sales and Use Tax, and Machinery, Equipment, and Manufacturing Fuel Tax.
The employer may complete a version of the form online, print it, and mail it to the DOR, or it may register online. Employers may also register by calling the North Carolina Taxpayer Assistance and Collection Center at 1-877-252-3052, or by visiting one of the NC Taxpayer Service Centers.
Employers in North Carolina are required to withhold the NC SIT from all wages and compensation earned or received in North Carolina. North Carolina does not have reciprocal agreements with any other state, although a non-resident may be able to take a credit on his resident state’s income tax return for SIT paid to North Carolina.
Since the NC SIT is based on an individual’s federal adjusted gross income, all income subject to the federal income tax is also subject to the NC SIT.
Before an employer can withhold SIT from an employee’s payroll, it must have the employee complete Form NC-4, Employee's Withholding Allowance Certificate. Although this form is similar to the federal Form W-4, North Carolina has its own form because of differences in the standard deduction and tax brackets, so the worksheet for calculating the number of allowances is different.
Withholding tax returns may be filed quarterly, monthly, or semi-monthly, depending on the total amount of tax withheld from employees’ wages. Complete instructions are provided by the DOR in Publication NC-30, Income Tax Withholding Tables & Instructions for Employers. Withholding returns may be filed and deposits made online, but quarterly (NC-5Q) and annual (NC-3) reconciliation forms must be filed by mail.
North Carolina Unemployment Compensation Tax
In general, any business employer who meets any of the following conditions must register with the Employment Security Commission of North Carolina (NC ESC) and pay unemployment tax based on its employees’ wages.
- Pays at least one employee during 20 different calendar weeks during a calendar year
- Has a payroll of at least $1,500 in any calendar quarter
- Is liable for the federal FUTA tax
There are different criteria for non-profit organizations, state and local governments, agricultural employers, and Indian tribes. These criteria are listed on the NC ESC website.
To register for the tax and obtain an unemployment tax ID number, an employer must complete Form NCUI 604, Employer Status Report. The application may be completed online.
Each employer must report and pay the unemployment tax quarterly using Form NCUI-101. The report may also be filed online. All eligible wages must be reported to the NC ESC, but employers pay the tax only on the first $19,700 of each employee’s wages. (This is the limit for 2011. To find the wage base for any other year, click here.)
Reporting New Hires in North Carolina
In 1996 Congress passed the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA). PRWORA places an obligation on every employer to report the hiring of a new employee within 20 days of the date the individual is hired.
New hires may be reported in North Carolina online. An employer must first register in order to use the system, but after that all new hires may be reported directly to the North Carolina Department of Health and Human Services, North Carolina Child Support Enforcement.
In addition to the requirements to report certain information regarding the employee, the Claims Resolution Act of 2010 (CRA) was signed into federal law on December 8, 2010. One provision of this requires all employers, beginning June 8, 2011, to include the date the employee first performed service for pay when reporting the new hire.
Workers Compensation Insurance
Workers compensation insurance is not a tax, but the premiums are tied to an employer’s payroll. In North Carolina any employer with three or more employees is required to have workers compensation coverage on its employees. Any business in which one or more employees are employed in activities that involve the use of, or presence of, radiation is required to have coverage.
For further information on workers compensation coverage in North Carolina, contact the North Carolina Industrial Commission.
Meeting the Requirements for Payroll in North Carolina
Without workers most business would be unable to manufacture or sell products, or sell services. But workers need to be paid. The process of paying employees is covered by both federal and state laws. By conforming to these laws, a business can operate successfully and its employees will be protected.
For additional states, click here.
Robert W Ditmer - With a Master of Science in Library and Information Science from Drexel University, Robert W. Ditmer began his career as a Research ...
