New NC-4 Changes; NC Withholding
Our friends in Raleigh recently enacted House Bill 998, effective January 1, 2014. Happy New Year!
What Do You Have to Do?
All employees (and pension recipients) must complete a new withholding allowance certificate. The new form must be completed so the correct amount of state income tax is withheld for any payment periods beginning on or after January 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.
Before your folks flip out, here is the deal:
There is a new, lower individual state tax rate in 2014. It is a flat rate of 5.8% in 2014 and 5.75% for 2015 and future tax years. However, the personal exemption has been eliminated, replaced by an increased standard deduction of $15,000 for married taxpayers filing jointly, $12,000 for head of household, and $7,500 for single and married taxpayer filing separately.
This legislation also provides for an unlimited charitable contribution deduction, but caps the aggregate deduction for mortgage interest and property taxes at $20,000. The legislation also eliminates the $4,000 deduction on government retirement income, the $2,000 deduction on private retirement income, and the $50,000 business income deduction. For business owners making money, net net, you lose. For most employed people, you win.
Choices & How to Fill It Out:
There are two versions of the new form, the NC-4EZ and the regular old NC-4. For 95+% of employees, they are best served filling out the new NC-4EZ. There (right on the face of the form), they select the table that represents their filing status, look at column under the number of children and then select the allowance figure based on their income (greater than or less than $40,000 per year). Really pretty simple.
Here they can also select exempt status if they didn't have any NC state income tax liability last year and don't expect to have any this year. Warn uninformed employees against this tactic as they will end up owing at tax time (not to mention the future pain of you having to process a garnishment because they didn't pay their state tax liability).
They can always use the old NC-4 and calculate the allowance figure based on all the tools on that form (and its instructions).
Finally, if you have employees that claim an artificially high number of allowances as a way to reduce their withholding, nothing prohibits them from doing that - but the same words of caution apply as discussed above.
You (to the extent you pay yourself W-2 wages) and your employees should see just a little less state tax taken out of the paycheck. Altogether good and simpler, though the loss of the $50,000 business income tax deduction will re-introduce state income tax to many of you.
So go out and get new NC-4's filled out and adjust in payroll as of January 1.
While you are at it, why not call us and see how we can make your accounting, tax and payroll so much easier (and maybe save you some money at the same time).