NC 4% Withholding on Payment to Nonresident Contractor or ITIN Contractor

Definition:

ITIN contractor. – An ITIN holder who performs services in this State for compensation other than wages.

ITIN holder. – A person whose taxpayer identification number is an Individual Taxpayer Identification Number (ITIN).

Nonresident contractor. – Either of the following:

a. A nonresident individual who performs in this State for compensation other than wages any personal services in connection with a performance, an entertainment, an athletic event, a speech, or the creation of a film, radio, or television program.

b. A nonresident entity that provides for the performance in this State for compensation of any personal services in connection with a NC General Statutes - Chapter 105 Article 4A 2 performance, an entertainment, an athletic event, a speech, or the creation of a film, radio, or television program.

Nonresident entity. – Any of the following:

a. A foreign limited liability company, defined using the same definition for the term "foreign LLC" in G.S. 57D-1-03, that has not obtained a certificate of authority from the Secretary of State pursuant to Article 7 of Chapter 57D of the General Statutes.

b. A foreign limited partnership as defined in G.S. 59-102 or a general partnership formed under the laws of any jurisdiction other than this State, unless the partnership maintains a permanent place of business in this State.

c. A foreign corporation, as defined in G.S. 55-1-40, that has not obtained a certificate of authority from the Secretary of State pursuant to Article 15 of Chapter 55 of the General Statutes.

Withholding Requirements:

Every payer who pays more than one thousand five hundred dollars ($1,500) during a calendar year to either a nonresident contractor or an ITIN contractor must deduct and withhold from compensation paid to the contractor the State income taxes payable by the contractor on the compensation as provided in this section. The amount of taxes to be withheld is four percent (4%) of the compensation paid to the contractor. The taxes a payer withholds are held in trust for the Secretary.

Contractors Exempt from 4% Withholding:

Exemptions from the 4% withholding Statute requires providing documentation by the organization of its tax exemption to the payor, such as a copy of the organization’s federal determination letter of tax exemption or a copy of a letter of tax exemption from the N.C. Department of Revenue, or proof that one of the below exemptions are applicable.

  1. Corporations (S and C) or Limited Liability Companies that have obtained a certificate of authority from the Secretary of State.
  2. A partnership that has a permanent place of business in N.C.
  3. Any entity that is exempt from N.C. corporate income tax
  4. An individual who is an ordained or licensed member of the clergy
  5. Resident of North Carolina

 

Annual Statement and Report:

A payer required to deduct and withhold from a contractor's compensation under G.S. Section 105-163.3 must give the contractor a written statement that sets out the following information and any other information required by the Secretary:

(1)        The payer's name, address, and taxpayer identification number.

(2)        The contractor's name, address, and taxpayer identification number.

(3)        The total amount of compensation paid during the calendar year.

(4)        The total amount deducted and withheld under this section during the calendar year.

This statement is due by January 31 following the end of the calendar year.

 

Each payer shall file with the Secretary an annual report that compiles the information contained in each of the payer's statements to contractors and any other information required by the Secretary in the manner required by the Secretary.

 

Resources: North Carolina General Statutes, Article 4A - Withholding; Estimated Income Tax for Individuals.

 

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Boone, NC, 28608 USA
(828) 262-2110

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