Key figures
North Carolina payables
2026, with sources
- Nonresident personal services withholding
- 4% over $1,500Performances, entertainment or athletic events, speeches, film or broadcast work.
- ITIN contractors
- Withholding appliesWithholding also applies to compensation paid to contractors with an ITIN.
- NC-1099M
- When tax withheldRequired only when North Carolina tax was withheld; a federal 1099 showing it may be used.
Withholding on some contractor payments
North Carolina is one of the few states that requires a business to withhold income tax from certain payments to contractors. A payer withholds 4% from compensation over $1,500 in a year paid to a nonresident individual or entity for personal services performed in North Carolina, but the Department limits those services to performances, entertainment and athletic events, speeches, and film, radio or television work. It also requires withholding from ITIN contractors and from vendors that do not provide a taxpayer identification number.
A company that makes such payments registers a separate North Carolina withholding number for non-wage compensation, files the withheld tax, and reports it on Form NC-1099M or a federal 1099 showing the North Carolina tax, with the NC-3 reconciliation by January 31.
An example
A Raleigh startup hosts a user conference and pays a New York keynote speaker $5,000. That is a speech by a nonresident above $1,500, so the company withholds $200, remits it under its non-wage withholding account and reports it to the speaker and the Department. The same company paying a Texas freelance developer $40,000 for remote work withholds nothing for North Carolina and has no state 1099 to file for them.
Use tax on purchases
Taxable goods and services bought from a vendor that did not charge North Carolina tax carry use tax at the 4.75% state rate plus the local rate where they are used. Remotely accessed software is generally not taxable in North Carolina, so most SaaS bills carry no use tax; hardware and downloaded software usually do.
Deadlines
- January 31W-2s and 1099s reflecting North Carolina withholding, with the annual reconciliationForm NC-3
The federal baseline
This page covers what North Carolina adds. The federal rules underneath it apply here too.
Common questions
Do we withhold North Carolina tax from out-of-state contractors?
Usually not. North Carolina’s 4% withholding on nonresidents applies only to personal services connected with a performance, an entertainment or athletic event, a speech, or a film, radio or television program, and only above $1,500 a year. A nonresident software contractor is outside it, but a paid speaker at your Raleigh customer event is not. Separate rules require withholding from contractors who have an ITIN, or who fail to give you a taxpayer identification number.
Which 1099s go to North Carolina?
Only those reflecting North Carolina tax withheld. The Department says Form NC-1099M is required only when tax was withheld, and a federal 1099-NEC showing the withholding can be used instead; those go in with the NC-3 by January 31.
Payables next door
- GAGeorgia payablesGeorgia participates in the combined federal/state 1099 program; 1099s are filed directly with the DOR only when Georgia tax was withheld.
- SCSouth Carolina payablesSouth Carolina requires 2% withholding on nonresident contractors paid over $10,000 under one contract unless they supply Form I-312, and its SaaS tax reaches software you buy through use tax.
- TNTennessee payablesTennessee has no state 1099 filing and no contractor withholding; the payables issue is use tax, which reaches the SaaS tools a startup buys because remotely accessed software is taxable here.
- VAVirginia payablesVirginia presumes workers are employees, requires new independent contractors to be reported within 20 days, and wants 1099s only when Virginia tax was withheld. SaaS purchases carry no use tax.
Founder guides on this
- PeopleContractor or employee? Classification for startupsContractor or employee depends on control, not the contract. The IRS test, state rules, 1099s, payroll registration and the cost of getting it wrong.
- Sales taxSales tax nexus for startups: when you owe tax in a stateSince Wayfair, selling into a state can create a sales tax obligation. How economic nexus works, why SaaS is taxable in some states and when to register.
More of the North Carolina guide
- AccountingAccounting and state tax in North CarolinaCorporate tax, conformity to federal rules, apportionment and what it does to your books
- ReceivablesReceivables and sales tax in North CarolinaSales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayrollPayroll taxes and employer rules in North CarolinaWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in North CarolinaRegistering to do business, annual reports, franchise tax and the filing calendar
- AdvisoryAdvisory: credits and decisions in North CarolinaCredits, incentives and the decisions that are cheaper to get right the first time
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.