Independent Contractor

Noble Hall

 

State Income Tax Withholding Requirement for Non-Wage Compensation Information

Independent Contractor Templates (Excel)

Who does the State withholding requirement apply to?

Non-Resident Individual

The withholding requirement applies to individuals who do not reside in North Carolina.

Non-Resident Entity

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-Resident Individual

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-Resident Entity

Same as above.

Are all personal services subject to withholding?

Non-Resident Individual

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.

Non-Resident Entity

Same as above.

What is the State income tax rate for these payments?

Non-Resident Individual

4% of non-wage compensation amount.

Non-Resident Entity

Same as above.

What is the effective date for the withholding requirement?

Non-Resident Individual

January 1, 1998 for all personal services. 

Non-Resident Entity

Same as above.

Are there exceptions to the withholding requirement for those residing/organized in another state?

Non-Resident Individual

Yes. Payments to ordained or licensed members of the clergy are not subject to withholding.

Non-Resident Entity

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?

Non-Resident Individual

A Certificate of Authority does not apply to individuals.

Non-Resident Entity

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 an exception to the requirement?

Non-Resident Individual

Withholding is not required if individuals provide the University with their NC address and social security number.

Non-Resident Entity

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 reports tax information to nonresident contractors and Federal/State tax officials?

Non-Resident Individual

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.

Non-Resident Entity

Same as above.

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. 

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