Income Tax Withholding Tables And Instructions For Employers Page 5
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69unless the payee elects no withholding. A pension payer
A nonresident with a North Carolina address should
that either fails to withhold or to remit tax that is withheld
also use Form NC-4P to elect not to have State income
is liable for the tax.
tax withheld. Completing Form NC-4P and electing not
to have State tax withheld does not necessarily mean that
A pension payer must treat a pension payment paid
the recipient is a resident of North Carolina.
to an individual as if it were an employer’s payment of
wages to an employee. If the pension payer has more
Exceptions to Withholding. Tax is not required to
than one arrangement under which distributions may be
be withheld from the following pension payments:
made to an individual, each arrangement must be treated
(1) A pension payment that is wages.
separately.
(2) Any portion of a pension payment that meets both of
Amount to Withhold. In the case of a periodic
the following conditions:
payment, as defined in Code section 3405(e)(2), the payer
a. It is not a distribution or payment from an individual
must withhold as if the recipient were a married person
retirement plan as defined in section 7701 of the
with three allowances unless the recipient provides an
Code.
exemption certificate (Form NC-4P) reflecting a different
b. The pension payer reasonably believes it is not
filing status or number of allowances. Form NC-4P,
taxable to the recipient.
Withholding Certificate for Pension or Annuity Payments,
(3) A distribution described in section 404(k)(2) of the
is used by a recipient of pension payments who is a North
Code, relating to dividends on corporate securities.
Carolina resident to report the correct filing status, number
(4) A pension payment that consists only of securities of
of allowances, and any additional amount the recipient
the recipient’s employer corporation plus cash not in
wants withheld from the pension payment. It may also
excess of $200 in lieu of securities of the employer
be used to elect not to have State income tax withheld.
corporation.
In lieu of Form NC-4P, payers may use a substitute form
(5) Distributions of retirement benefits received from
if it contains all the provisions included on Form NC-4P.
North Carolina State and local government retirement
systems and federal retirement systems identified
For a nonperiodic distribution, as defined in Code
as qualifying retirement systems under the terms of
section 3405(e)(3), four percent (4%) of the distribution
the Bailey/Emory/Patton settlement that are paid to
must be withheld. A nonperiodic distribution includes an
retirees who were vested in the retirement systems
eligible rollover distribution as defined in Code section
as of August 12, 1989.
3405(c)(3). State law differs from federal law with respect
to eligible rollover distributions. Federal law imposes a
Notification Procedures for Pension Payers. A
higher rate of withholding on eligible rollover distributions
pension payer is required to provide each recipient with
than on other nonperiodic distributions.
State law
notice of the right not to have State withholding apply and
imposes the same rate of withholding on all nonperiodic
of the right to revoke the election. The notice requirements
distributions.
for North Carolina purposes are the same as the federal
notice requirements, which are provided in section
Election Not to Have Income Tax Withheld.
A
3405(e)(10) of the Code. Section D of Federal Regulation
recipient may elect not to have income tax withheld from a
35.3405-1 contains sample notices that may be modified
pension payment unless the pension payment is an eligible
for State purposes to satisfy the notice and election
rollover distribution.
A recipient of a pension payment
requirements for periodic payments and nonperiodic
that is an eligible rollover distribution does not have the
distributions.
option of electing not to have State tax withheld from the
distribution.
Instead of notification that tax will be withheld unless
the recipient chooses not to have tax withheld, pension
Except for eligible rollovers, a recipient of a pension
payers may notify recipients whose annual payments
payment who has federal income tax withheld can elect
are less than $10,560 that no State tax will be withheld
not to have State income tax withheld. Conversely, a
unless the recipient chooses to have State withholding
recipient who has State income tax withheld can elect not
apply. Such notice may be provided when making the
to have federal income tax withheld.
first payment.
An election not to have tax withheld from a pension
payment remains in effect until revoked by the recipient.
Reporting and Paying the Withheld Tax. A pension
An election not to have tax withheld is void if the recipient
payer required to withhold State tax from a pension
does not furnish the recipient’s tax identification number to
payment but not already registered with the Department of
the payer or furnishes an incorrect identification number.
Revenue for wage withholding must register by completing
In such cases, the payer will withhold on periodic payments
Form NC/BR. The completed form should be mailed to the
as if the recipient is married claiming three allowances and
N.C. Department of Revenue, Business Registration Unit,
on nonperiodic distributions at the rate of 4 percent.
P.O. Box 25000, Raleigh, North Carolina 27640-0100. The
Page 5
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