New NC-4 Required For Payments Beginning January 1, 2014

FROM: N.C. Department of Revenue

TO: ALL EMPLOYERS and Payers of Pension, Annuity, and Deferred Compensation Plans

The North Carolina General Assembly recently enacted House Bill 998, which becomes effective for taxable years beginning on or afterJanuary 1, 2014. Under this new law, taxpayers may no longer claim a personal exemption for themselves, their spouse, children, or any other qualifying dependents. Additionally, many deductions and tax credits that impact North Carolina withholding tax are no longer available for tax years beginning on or after January 1, 2014.

As a result of this Act, every employer must have all employees provide a new Employee’s Withholding Allowance Certificate, either Form NC-4 EZ or Form NC-4. The new form must be completed by the employee and provided to the employer so the correct amount of State income tax is withheld for any payment periods beginning on or after January 1, 2014.

Please work with your employees to determine which form (Form NC-4 EZ or Form NC-4) is most suitable for their filing preference:

• Form NC-4 EZ: We anticipate this new, simpler form will likely suffice for most employees. Employees should use this form if they plan to claim the NC standard deduction and plan to claim no tax credits or only the credit for children, if they qualify to claim exempt status, or if they prefer not completing the extended Form NC-4. Employees should understand Form NC-4 EZ can still be used even if they plan to itemize deductions for their tax filing.

• Form NC-4: Extended withholding form which may provide more precise withholding figures, but will require historical tax return information and estimation of 2014 income, deductions, and credits from the employee.

Likewise, all recipients of pension or annuity payments must complete and provide to their payer a new Withholding Certificate for Pension or Annuity Payments, Form NC-4P, in order to withhold the correct amount of State income tax for any pension payment periods beginning on or after January 1, 2014.

If an employee fails to provide the employer with the applicable updated form(s), the employer is required to withhold North Carolina tax based on the following status:
• Employees failing to file Form NC-4 EZ or Form NC-4: “Single” with no allowances
• Pension Recipients failing to file Form NC-4P: “Married” with three allowances

If an automated payroll system is being used to calculate the amount of North Carolina income tax to be withheld, implementation of the new tax rate (5.8 percent in 2014) may be accomplished by using one of the enclosed methods for calculating the amount of tax to be withheld.

Copies of the forms, as well as instructional materials to assist employers through the process, are available at www.dornc.com. If employers require additional assistance, please call the Department of Revenue at 1-877-252-4487. This special telephone number will be available through February 28, 2014.

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