According to the North Carolina (NC) Department of Revenue Directive PD-10-1, effective January 1, 2010, a payer is required to withhold North Carolina income tax of four percent from non-wage compensation paid to either of the following:
- A nonresident individual or nonresident entity for personal services performed in North Carolina.
- An Individual Taxpayer Identification Number (ITIN) holder who is a contractor and not an employee for services performed in North Carolina.
The requirement to withhold applies to payers who, in the course of a trade or business, expect to pay more than $1,500 within a calendar year of non-wage compensation. That compensation must be paid to nonresident or ITIN contractors, with certain exceptions. Payers should file and pay withholding taxes on contractors with ITINs just like they would for regular employees.
Definitions:
ITIN Contractor – An ITIN holder who performs services in this North Carolina for non-wage compensation.
ITIN Holder – A person whose taxpayer identification number is an ITIN. An ITIN is issued by the Internal Revenue Service to a person who is required to have a taxpayer identification number but does not have and is not eligible to obtain a social security number.
Nonresident Contractor – Either of the following:
- A nonresident individual who performs in North Carolina 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; or
- A nonresident entity that provides for the performance in North Carolina for compensation any of the above personal services.
Nonresident Entity – Any one of the following:
- A foreign LLC, as defined in G.S. 57C-1-03, that has not obtained a certificate of authority from the Secretary of State pursuant to Article 7 of Chapter 57C of the General Statutes;
- A general partnership formed under the laws of any jurisdiction other than North Carolina, unless the partnership maintains a permanent place of business in NC; or
- 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.
Contact your local CB&H tax professional to help you and your organization successfully comply with this tax change.
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