RALEIGH (AP) — North Carolina’s new tax overhaul law means potentially millions of workers have to fill out updated forms to adjust the amount regularly withheld from their paychecks to pay taxes.
The rules for withholding changed after the tax law passed this summer reduced income tax rates and eliminated dozens of tax exemptions and credits starting in 2014. At the same time, the standard deduction will grow. The forms need to be filled out by the end of the year.
The Department of Revenue sent the updated forms and other materials to about 240,000 employers and payers of annuities and pensions, which is considered income. More than 4.3 million taxpayers reported in 2012 having withheld at least some money.
Employees must complete the form and give it to employers so the appropriate amount of state income tax is withheld from paychecks after the changes take effect Jan. 1. Otherwise, people could see a large tax refund or big tax bill when they file 2014 returns in early 2015.
In the past, for example, a couple filing jointly could receive several personal allowances for a spouse, dependents and other expected deductions and credits. Under the new law, personal exemptions have been eliminated save largely for a per-child tax credit that remains in place for households making under $100,000.
“It’s just a completely different process,” Department of Revenue spokesman Trevor Johnson said. “It’s going to be a little more time to take a look at it and see how many allowances you are due.”
A large majority of income tax filers probably will claim zero allowances, Cindy Avrette, a tax analyst with the General Assembly’s fiscal research office, told lawmakers at an oversight committee Tuesday. There’s an abbreviated withholding form for people whose taxes aren’t too complicated.
The department has posted on its website the forms and instructions, an updated list of frequently asked questions and a 45-minute tutorial to help people. A special phone number has also been set up to handle withholding questions.
Some smaller companies have complained about the quick turnaround for the forms and the burden of getting employees to fill them out. Sen. Bill Rabon, R-Brunswick and co-chairman of the Senate Finance Committee, said legislators have been talking with department leaders to address concerns.
“This is hopefully going to be a one-time deal, and most people are going to see an increase in their take home pay,” Rabon said.
The new tax law will replace a three-tiered income tax of 6, 7 and 7.75 percent with one rate of 5.8 percent in 2014 and 5.75 percent in 2015. Standard deductions also will be higher — from $6,000 for a married filing jointly return today to $15,000 in 2014, meaning the first $15,000 in income won’t be taxed. The state’s version of the earned income tax credit, which helped the working poor, also has been repealed starting next year.
Federal income tax withholding forms aren’t affected.