Mandatory Deductions

It is the policy of the State of North Carolina to comply with all payroll tax deductions prescribed in federal and North Carolina State regulations.

G.S. 143B-426.39 Powers and Duties of the State Controller

G.S. 105 Taxation

IRS Publication 15 Circular E

Various federal rules and statutes*

Employee tax withholding is mandated by law for the following:

• Federal Income Tax
• State Income Tax
• Social Security (FICA) Tax
  • Old Age, Survivors, and Disability Insurance (OASDI)
  • Medicare Insurance (HI)
  • Medicare Qualified Federal Employees (MQFE) - applied in lieu of the HI tax for employees of special federal programs

Deductions for OASDI have a maximum earnings limitation but HI or MQFE is deducted regardless of earnings.  Information on the current FICA maximum earnings limitation and tax rates is located in section D.02 Current Year Payroll Processing Rate Table.

Any employee paid for short term disability with five or more years of state service earned prior to August 12, 1989 is exempt from state tax withholding.

All employees must complete a W-4 Employee's Withholding Allowance Certificate form and a NC-4 Employee's Withholding Allowance form.  Form W-4 is used to claim withholding for federal income tax.  Form NC-4 is used to claim withholding for state income tax.  Withholding allowances determine how much income tax is withheld from an employee's earnings.  The amounts withheld are determined by graduated tables provided by the IRS and NCDOR. 

Forms W-4 and NC-4 are available online at:

http://www.ncosc.net/sigdocs/sig_docs/payroll/Payroll_Forms.html

A Quick Tax Calculation Sheet that provides the IRS and NCDOR graduated tax tables is also available online at:

http://www.ncosc.net/sigdocs/sig_docs/payroll/OSCPXA09_2005_Quick_Tax_Calculation_Sheet.pdf

Employees that fail to submit completed W-4 and NC-4 forms to the payroll office will be established on the Central Payroll System (CPS) with the maximum withholding amount, single with no exemptions (S-00).

Employees that separate from a state agency for the purpose of employment at another state agency are required to submit new W-4 and NC-4 forms to the hiring agency.  Employee elections and deductions do not transfer automatically from one agency to another.  Instructions for processing transfers are available in the Central Payroll Procedures Manual.

Employees must submit new W-4 and NC-4 forms to affect changes to withholding elections.   The deadline for submitting changes for tax withholdings are defined on the quarterly Payroll Time Schedule under the category "Information to Payroll Office".  Acceptance of changes after this deadline is at the discretion of the agency payroll staff.  The Payroll Time Schedule can be accessed at:

 http://www.ncosc.net/sigdocs/sig_docs/payroll/Payroll_Time_Schedules.html

Employees can claim exemption from income tax withholding if IRS guidelines are met.  Information on claiming exemption from withholding is available on the tax forms.  By claiming this exempt status, no federal or state taxes will be withheld.

The exemption from withholding status expires each year on February 15.  Each calendar year, new tax forms must be submitted to claim the exempt status.

FICA tax exemptions are subject to change as new federal regulations are issued. The Director of the State Retirement System is the primary source for determining the exemption status of employees and specific questions about FICA tax exemptions should be directed to the Director's office. Current scenarios in which employee wages are exempt from FICA tax include:

• University or community college students that are full-time students but who work for the institution as part-time employees are exempt from paying FICA tax.  Full time students are defined as:
  
  • Students registered for twelve or more hours in a regular semester
  • Students registered for six or more hours in a summer school session

This exemption only applies to students enrolled at state educational institutions.  Students attending a private university that are employed by a state university or community college are not exempt from the FICA tax. 

Students that are employed by a state university or community college during the summer who are NOT enrolled in summer school for the appropriate number of hours are subject to the FICA tax.

A full-time student who is also a full-time employee of a state educational institution is not exempt from paying FICA tax.  In this situation, the individual's major function is deemed to be that of a full-time employee.

• Employees paid on short term disability are required to pay FICA tax for any disability payments received for a period of six full months from the date that the disability begins.  Payments received after the first six full months from the date the disability started are exempt from FICA tax.
  
• Temporary employees hired for the sole purpose of dealing with an emergency are exempt from FICA for the duration of the emergency.
  
• Elective officials comprising governing boards whose duties require not more than 1000 hours of service per year are exempt from FICA.
  
• Members of all other boards, commissions, councils and committees, whether the positions are filled by the Governor or the General Assembly, whose duties require less than 1000 hours of service per year are also exempt from FICA.
  
• Patients or inmates that provide services in a state hospital or institution are exempt from FICA taxes.

The state is required to withhold income taxes from employee payments according to the W-4 and NC-4 forms submitted to the payroll office.  It is the employee's responsibility to complete these tax forms correctly. 

If the employee fails to complete the forms, or does so incorrectly, the state will not refund any of the taxes withheld.  The employee must obtain a refund of any over withheld income taxes when filing the annual income tax return.  However, over withheld taxes resulting from a payroll keying error will be refunded to the employee if the payroll office receives notification of the error prior to December 31.

FICA Status of Foreign Nationals

Employees who are foreign students or scholars holding an F-1 (student) or J-1 (exchange visitor, researcher, or professor) visa status are not subject to the FICA tax under the following conditions:

• J-1 and F-1 students are exempt from FICA for five years
• J-1 visitors are exempt from FICA for two years

All other aliens pay social security tax if their employment meets social security requirements.

A foreign national's tax status is included on the PD-105 form that is submitted by the Personnel Office to the agency's payroll office.  It is the responsibility of the Personnel Office to track the duration of employment for foreign nationals and to identify when the alien's tax status changes.

Income Tax Status of Foreign Nationals

Central Payroll and agency payroll staff cannot provide tax advice to any employee, including foreign national employees.  Aliens requiring tax assistance should contact the Internal Revenue Service (IRS), the North Carolina Department of Revenue (NCDOR), or their personal tax advisor.  Due to the number and complexity of federal tax treaties and laws, it is recommended that aliens refer to the following IRS publications:

• Publication 515 Withholding of Tax on Nonresident Aliens
• Publication 519 U. S. Tax Guide for Aliens
• Publication 901 U. S. Tax Treaties

Additional information for foreign nationals is available at the following web site:

http://www.ncosc.net/Foreign_Nationals/Foreign_National_Index.html

This policy applies to all State entities.

There are no exceptions to this policy.

There are no special terms for this policy.

*For information on applicable federal rules and statutes please contact the Central Payroll Division.