North Carolina taxes aren’t as steep as many other states, but it's crucial to know your filing obligations for employees who live and work there. Federal schemes like FICA taxes (including social security and Medicare taxes) are just a piece of the puzzle—you also have to account for state income taxes and unemployment insurance, and know your filing terms, which vary depending on how much you withhold monthly.
So whether you’re starting a small business in North Carolina or running a global company with North Carolina employees, read on for everything you need to know about the state’s withholding tax requirements.
The North Carolina Department of Revenue (NCDOR) administers the state's payroll taxes. Employers are required to withhold taxes from paychecks for any North Carolina resident employees or nonresident employees working within state boundaries. To ensure your employee is accounted for in your tax burden, make sure to use the New Hire Reporting Directory to register workers you recently put on payroll. North Carolina doesn’t impose any local taxes, but it does levy a state income tax and run its own unemployment fund.
Also keep in mind that while state law requires most North Carolina businesses with more than three employees to get workers’ compensation coverage (with exemptions for some railroad workers, farm workers, and federal employees) through the North Carolina Industrial Commission, employers don’t pay taxes on this benefit.
Learn more about North Carolina's payroll taxes below.
The Employment Security office in North Carolina’s Department of Commerce oversees State Unemployment Insurance (SUI), which offers temporary payments to employees who lost their jobs for reasons outside of their control. Employers contribute to this fund by withholding taxes on their employees’ behalf and filing a Quarterly Tax and Wage Report (Form NCUI 101).
SUI tax rates are calculated using an “experience rating” system, which changes according to payroll, history of taxes paid, and whether those past taxes were filed on time. Credits from past payroll balances are applied to yield an Employer’s Reserve Ratio Percentage (ERRP), which is then used to determine the SUI contribution rate.
