North Carolina Revenue Secretary Announces Automatic Waiver of Failure to File Penalty for Certain Informational Return Filings

A law enacted in 2015 required the imposition of a $50 late filing penalty in any instance in which informational returns involving North Carolina state income tax withholding were filed after the due date (i.e., January 31 of the succeeding year). These include Form NC-3 “Annual Withholding Reconciliation”, and the Department of Revenue’s (Department) copies of federal Forms W-2, 1099, and other withholding statements. The penalty was effective for taxable years beginning on or after January 1, 2016, but was waived for forms due to be filed by January 31, 2017. However, the Department issued a notice on September 15, 2017 stating that the penalty would be assessed for any forms for the 2017 calendar year that were filed beyond the January 31, 2018 due date.

Given the confusion surrounding the reporting requirements of these informational returns and late clarification of these requirements, the Department issued an Important Notice on February 8, 2018 (see link below) declaring an automatic waiver of the failure to file penalty, which would include returns filed beyond the January 31, 2018 due date.

https://files.nc.gov/ncdor/documents/files/form_nc-3_late_filing_waiver_final.pdf?DqgVVSBgqYLHG_0uIRJYdD4P4UwArl9B

Taxpayers submitting forms beyond the January 31, 2018 due date should not include the $50 failure to file penalty. If a taxpayer previously paid the $50 failure to file penalty, the Department will refund the penalty.

This important notice also provides clarification as to when such informational reports are required to be filed with the Department and how they can be submitted. With respect to Federal Forms 1099-MISC, a payee must file Form 1099- MISC directly with the Department if either of the following conditions are met:

  1. Box 16 (state tax withheld) is populated and North Carolina income tax has been withheld, or
  2. Either Box 3 (other income) or Box 7 (Nonemployee compensation) is populated and the recipient’s address is located in North Carolina.

The required 1099-MISC forms may be submitted to the Department either by:

  1. Using the Departments eNC3 application portal to submit these electronically (see the Department’s link for information on how to upload these documents - https:// www.ncdor.gov/taxes/withholding-tax/enc3-form-nc-3- w-2s-and-1099s/enc3-web-file-upload), or
  2. Mailing paper copies to the Department. Taxpayers that cannot meet the electronic submission requirement can mail NC-3, W-2 and 1099 forms to the Department at the following address:

    North Carolina Department of Revenue
    PO Box 25000
    Raleigh, NC 27640-0001

Note that despite the concession made by the Department for filings involving the 2017 calendar reporting year, North Carolina statutes (N.C.G.S. §§ 105-163.3(d), 105-163.7(b), and 105-251.2(d)) generally require that Form NC-3 and certain withholding statements and other informational reports be filed with the Department in an electronic format unless a taxpayer can show good cause to the Department to waive the electronic submission requirement.

Thus, this waiver of the failure to file penalty does not guarantee that the Department’s original intent to impose mandatory electronic filing of such returns, along with penalties for failure to timely do so, will not be continued for future reporting periods.

Contacts

John Iannotti, Partner | State & Local Tax
704.367.7068 | john.iannotti@dhg.com

Tom Yonchak, Senior Manager | State & Local Tax
704.367.7088 | tom.yonchak@dhg.com