1999 Tax Law Changes - Withholding of Income Tax


G.S. 105-163.1 - New Definitions: This section was amended to add subdivisions (11a) and (11b) to define "Pension payer" and "Pension payment," respectively. "Pension payer" is defined as "A payer or a plan administrator with respect to a pension payment under section 3405 of the Code." "Pension payment" is defined as "A periodic payment or a nonperiodic distribution that is not an eligible rollover distribution, as defined in section 3405 of the Code." Subdivision (14) was amended to include "a pension payer" in the definition of "withholding agent."
(Effective January 1, 2001; HB 1466, S.L. 99-414.)

G.S. 105-163.2A - Pension Payers Must Withhold Taxes: This statute was enacted to require a pension payer that must withhold federal income tax on a pension payment to a resident of this State to also withhold State income tax from the pension payment. The pension payer is liable for the amount required to be withheld or the amount withheld and not remitted to the Department. The statute identifies certain pension payments that are exempt from the withholding requirement.
For periodic payments, the payer must withhold tax as if the payment were wages. To determine the proper amount to withhold, the payer must obtain an exemption certificate (Form NC-4) from the recipient. If the recipient does not provide an exemption certificate, the payer must calculate the amount to withhold as if the recipient were a married individual with three withholding exemptions. For nonperiodic distributions, the payer must withhold taxes at the rate of four percent (4%).
A recipient of a pension payment may elect not to have taxes withheld. The election must be in the form prescribed by the Secretary. For periodic payments, the election remains in effect until revoked by the recipient. For nonperiodic distributions, the election applies on a distribution-by-distribution basis unless it meets conditions prescribed by the Secretary for it to apply to subsequent nonperiodic distributions. A pension payer must notify each recipient of the right not to have tax withheld. A recipient's election not to have taxes withheld is void if the recipient does not furnish the recipient's tax identification number to the pension payer or the Department notifies the payer that the tax identification number is incorrect.
(Effective January 1, 2001; HB 1466, s. 3, S.L. 99-414.)