How Much State Income Tax Does North Carolina Withhold From Paychecks?

North Carolina has a flat tax rate of 5.499 percent. The state went to a flat tax system in 2014. They started by charging 5.8 percent. It’s decreased a bit each year since then to its current rate. Before the flat tax, North Carolina had a three-tiered system with rates of 6, 7 and 7.75 percent.

When you get a job in North Carolina your new employer will have you fill out a Form W4 for federal income tax and a North Carolina Employee’s Withholding Allowance Certificate for state tax. The information you provide on these forms tells your employer how much how much federal and state income tax to deduct from your paychecks.

North Carolina has three versions of the Employee’s Withholding Allowance Certificate; Form NC-4, Form NC-4 EZ and Form NC-4 NRA. Which one you fill out can be based on which federal income tax form you use. If you file IRS Form 1040 or 1040A, you’ll probably use NC-4. If you file 1040EZ, you’ll likely fill out NC-4EZ. Form NC-4 NRA is for non-U.S.citizens.

NC-4 EZ is for single taxpayers who do not plan to itemize and who take the standard deduction. NC-4 is for taxpayers who itemize their deductions. It includes a worksheet for you to fill out. The total number of allowances you wind up with after filling out the worksheet changes the amount of tax that will be withheld from your paycheck. It factors in that you itemize deductions, may have children and may have federal and state income tax adjustments. These adjustments include things like moving expenses, alimony that you pay and business expenses. So even though North Carolina has a flat tax rate, if you itemize, the taxes deducted from your paycheck are adjusted based on the number of allowances you claim on NC-4.

If you don’t fill out one of these forms, the state of North Carolina requires your employer to withhold state tax from your pay at the single with no allowances rate.

Check for Exceptions

Not everyone who works in North Carolina has to pay their state income tax. If you’re a resident of another state but are living in North Carolina because your military spouse is stationed there, you do not have to pay North Carolina income tax. However, you do have to meet three conditions. Your military spouse has to be officially stationed in North Carolina per military orders. Second, you have to be in North Carolina for no other reason than to be with your spouse. Last, both you and your spouse have to be living in North Carolina. If all of these conditions apply to you, you can check box 4 on Form NC-4EZ and write the name of your home state on the line next to it. This has to be done annually.

There’s also an exemption for seamen. No state income tax is withheld if you work on a fishing boat or fish processing boat. Additionally. no state tax is withheld if your ship or boat is involved in foreign, coastwide, intercoastal or interstate trade. This also applies if your vessel is involved in trade with states that do not share borders with North Carolina. This excludes Virginia, Tennessee, Georgia and South Carolina.

One other exemption is wages that are paid to you by a federally recognized Indian tribe. You have to be living and working on the Indian reservation to qualify for this exemption. If this applies to you, fill out Form NC-4EZ and check box 3.

Take Your 2018 Standard Deduction

North Carolina’s flat tax rate for 2018 is 5.49 percent. Standard deductions are $8,750 if you’re single and $17,500 if you’re married and filing jointly. The state’s lawmakers have proposed reducing the flat tax to 5.35 percent for 2018. However, that same bill would increase standard deductions to $10,000 for single taxpayers and $20,000 for married couples filing jointly.

Take Your 2017 Standard Deduction

For tax year 2017, the individual income tax rate is also 5.49 percent. Beginning Jan. 1, 2017, standard deductions are $8,750 for single taxpayers and $17,500 if you’re married and filing jointly. This is up from $7,750 and $15,500 in 2016. If fact, before the state’s 2013 tax reform, standard deductions were $3,000 and $6,000. Taxes have changed dramatically and quickly in North Carolina.

Use an Income Tax Calculator

If you don’t itemize your deductions, figuring out how much state income tax North Carolina will withhold from your paychecks is pretty straightforward. Multiply your gross pay by 0.05499. However, If you itemize deductions you’ll probably need a tax calculator.

You’ll find many online. Be sure you’re using a North Carolina income tax calculator and that it’s for the year that you want to calculate. As 2018 rolls on, it becomes harder to find tax calculators for 2017, but they’re there. You just have to dig a little. Using the state’s abbreviation in your search bar works as well as spelling it out.

The more boxes you have to fill in on the pay calculator, the more accurate the result will be. A North Carolina income tax calculator that includes boxes for your federal, state and local allowances and the ZIP code where you work is going to be more accurate than one that just requires the amount of your pay and your filing status.

About the Author

LeDona Withaar has over 20 years’ experience as a securities industry professional and financial manager. She was an auditor for the National Association of Securities Dealers, a compliance manager for UNX, Inc. and a compliance specialist at Capital Group. She has done volunteer work in corporate development for non-profit organizations such as the Boston Symphony Orchestra. LeDona has an MBA from Simmons College in Boston, Massachusetts and a BA from Mills College in Oakland, California. She is currently a teacher and horse rancher.


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