Written by Andrew Coats.
This month’s Finance Division Knowledge Base topic spotlight is on North Carolina’s 4% withholding tax rate on out-of-state suppliers.
The North Carolina 4% Withholding Tax is levied upon nonresidents of North Carolina (includes U.S. nonresident aliens) for:
- Personal services in connection with performance, an entertainment or athletic event, a speech or the creation of a film, radio or television program performed in North Carolina by nonresidents and that exceeds $1,500 per calendar year, cumulatively.
- An Individual Taxpayer Identification Number (ITIN) holder who performs services in North Carolina for compensation other than wages.
The 1997 session of the General Assembly enacted legislation, General Statute 105-163.3, which requires withholding of North Carolina income tax at the rate of 4% on non-wage compensation paid to nonresident individuals and businesses. This 4% withholding tax is for personal services rendered within N.C. over $1,500, unless certain criteria are met.
The withholding tax does not apply to businesses providing repairs. The withholding tax applies to individuals who provide only certain categories of services.
If compensation in excess of $1,500 is paid during a calendar year to a nonresident contractor for personal services in North Carolina, the payer must withhold North Carolina Income Tax at the rate of 4%.
For this tax, the North Carolina Department of Revenue, Directive PD-98-3, defines a contractor as “a nonresident individual who performs in this State for compensation other than wages any personal services in connection with a performance, an entertainment or athletic event, a speech, or the creation of a film, radio, or television program.”
The tax must be withheld from any nonresident and any nonresident entity (C or S corporation, partnership or limited liability company) receiving any personal services income.
To learn more about the 4% NC Withholding Tax, please review the following resources:
- 4% Withholding on Nonresident Personal Services
- Contractors Exempt from 4% Withholding
- Frequently Asked Questions on 4% Withholding
- Finance Division Knowledge Base > Taxes category, which has many articles to help you address multiple tax questions.
- University Tax Compliance page, which has more in-depth resources to help you get the answers you need.
University Tax Compliance is part of the University Controller’s Office and is here to help you save money and be in compliance with federal, state and university rules and regulations. Reach out to NCSU Tax Compliance, should you need further assistance.