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Policies and Procedures

Policy 707 – NC Income Tax Withholding Requirement for Non-Wage Compensation Paid to Nonresidents

Effective
June 1, 1999
Last Updated
August 9, 2010
Responsible University Officer
Director of Systems and Operations
Responsible Unit
Systems and Operations

Policy Statement

The 1997 session of the General Assembly enacted legislation which requires withholding of NC income tax at the rate of 4 percent on non-wage compensation paid to nonresident individuals and businesses for personal services rendered within NC unless certain criteria are met. The withholding tax does not apply to businesses providing repairs. The withholding tax applies to individuals who provide only certain categories of services.

Withholding Requirements

The University is required to withhold 4 percent of amounts paid for personal services performed in NC by a nonresident (does not maintain a residence in North Carolina) individual or business in connection with a performance, an entertainment, an athletic event, a speech, or the creation of a film, radio, or television program.

The tax withholding requirement applies to payments for services made on or after January 1, 1998. The tax withholding requirement does not apply to purchases of goods. Also, the tax withholding requirement does not affect the payments of salaries and wages made to University faculty, staff, students, and temporary employees. The requirement does affect payments made to independent contractors including individuals, partnerships, corporations, and other businesses.

Reason for Policy

The University is required by North Carolina law to withhold state income tax at the rate of 4% on non-wage compensation paid to nonresident individuals and businesses for personal services rendered within North Carolina unless certain criteria are met.

Exclusions

Tax is not withheld from:

  • a limited liability company that has obtained a certificate of authority from the NC Secretary of State
  • a foreign limited partnership that has a permanent place of business in NC
  • a foreign corporation that has obtained a certificate of authority from the NC Secretary of State

Special Situations

None

Procedures

  • 707.1 - Payments for Personal Services of a non-North Carolina Resident

Additional Information

Frequently Asked Questions

Q: How do I get a refund of tax withheld from my Independent Contractor payment?
A: You will have to file a North Carolina State Tax Form D400

Q: Do I receive a W-2 showing how much tax was withheld from my payment for services?
A: No, a 1099PS will be mailed to you no later than January 31 of the following year.

Q: I operate a speaker’s bureau that frequently provides guest speakers to universities across the country. My company is a limited liability company based in Texas. My most recent payment from the University for providing a speaker had 4 percent deducted from the invoiced amount. I have never done business with a North Carolina entity before now. I personally did not perform the service so why am I being taxed?
A: To avoid this tax your company must have a certificate of authority from the North Carolina Secretary of State.

Related Data

707.1rd - N.C. Income Tax Withholding Requirements Matrix
North Carolina Department of the Secretary of State
North Carolina Department of Revenue

Contacts

SUBJECT CONTACT TELEPHONE FAX E-MAIL
Non-resident withholding Systems & Operations 919-843-5098 919-962-2356 operations_team@unc.edu

History

Revised:
August 9, 2010
February 11, 2004