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State Income Tax Withholding Requirement for Non-Wage Compensation Information
| 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:
|
| 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:
|
| 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:
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| 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:
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| 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. | ||