The New NC-4

January 4, 2014

Questions and Answers by Rollin J. Groseclose, JPS Shareholder

HAVE YOU FILLED OUT THE NEW NC-4 YET?

If not, you’re missing out on so much. Most of us filled one of these out some time back when we started working with our current employer, expecting to only have to deal with it again if we changed jobs.

If you’re responsible for collecting these on behalf of your company, have you received all of them back from your employees yet? How are you answering employee questions about how to complete the form? They all seem to be asking the same thing – “How should I fill this out?” Or my favorite – “Do I really have to fill this out?”

What about that EZ form? It is certainly “easy” to fill out when compared to the longer version. But which form should be used?

It doesn’t help that the term “allowances” has long been readily confused with “exemptions.” The former refers to a mechanism used to adjust withholding from prescribed withholding tables, while the latter refers to a deduction available for you, your spouse and dependents – a deduction that is eliminated for NC purposes starting January 1, 2014. The two have no direct correlation, but the news about the elimination of exemptions has caused many employees to ask: “So why am I claiming ‘allowances’ on this form if I don’t get to deduct them any longer?”

Perhaps I’ve rambled enough with questions that you are all too familiar with, failing to provide any answers. Let me try to provide some answers and perspective.

This is the first time I can recall a mandate requiring every North Carolina employee (and many pension recipients) to provide a new withholding form simultaneously. Why did the Department of Revenue (DOR) come out with this mandate on employers? (Sorry, I couldn’t resist posing yet another question.)

The NC Legislature passed House Bill 998 (now Session Law 2013-316) in late July. While many
question the appropriateness of the changes and their contribution to “tax reform,” they are nevertheless the most widespread changes made in a single bill in years. As a result, NC individual income taxes are set to change significantly starting January 1, 2014. Here’s a quick list of the changes:

  • Move away from graduated tax rates (6 – 7.75%) to a flat 5.8%.
  • No more personal exemptions.
  • Higher standard deductions for every filing status.
  • Only three itemized deductions allowed: (1) charitable contributions, (2) home mortgage interest and (3) real estate taxes. (2) and (3) have a combined cap of $20,000.
  • Elimination of all other itemized deductions – medical expenses, personal property taxes, investment interest and unreimbursed job expenses, to name a few.

Many other individual tax changes were also made this year.

Withholding tables were obviously directly impacted by some of these changes, and all of them will play a role in the final N.C. tax bill for most every taxpayer. It seems the DOR recognized the significance of the changes and felt it was critical for employees to have the opportunity to adjust their withholding in response.

Back to one of my earlier questions – “How should I fill this out?” In response, I have resorted to using one of the most common answers given for tax questions – “It depends.” The truth is, it does depend, and there’s no quick and dirty way to go about coming up with the right number for every situation.

Maybe it would help to tell you what I did personally; I used a shortcut. I checked the box for my filing status (Married) and entered 2 allowances. I’ll revisit it again once withholding starts in January and see if I like the result. If not, I’ll take a fresh look and adjust accordingly by submitting a new form. This is a perfectly acceptable approach. Maybe I should have taken the time to read through all 6 pages of NC-4. Yes, I must admit – I did use the “EZ” form.

I wish you precise withholding and a Happy New Year!