By: Rollin Groseclose
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 yet? How are you answering client or 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 to you, your spouse and dependents—a deduction which North Carolina has elected to eliminate, starting January 1, 2014. The two have no direct correlation, but the news about the elimination of exemptions has caused many employees to ask: “Why am I claiming ‘allowances’ on this form if I don’t get to deduct them?”
Perhaps I’ve rambled enough with questions that you are all too familiar with, and 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 NC employees, as well as 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 of 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. Deduction items (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.
Other individual tax changes were also made this year—for examples, take a look at House Bill 14 (Session Law 2013-414).
Withholding tables were obviously directly impacted by some of these changes, and all of them will play a role in the final NC tax bill for most every taxpayer. It seems DOR recognized the significance of the changes and felt it was critical for employees to have the opportunity to adjust their withholdings 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 come up with the right number for every situation.
Personally, I used a shortcut. I checked the box for my filing status (Married) and entered two allowances. I’ll revisit it again once withholding starts in January to see if I like the result. If not, I’ll take a fresh look and adjust accordingly. Maybe I should have taken the time to read through all six pages of NC-4. Yes, I must admit—I did use the “EZ” form.
I wish you precise withholding and a Happy New Year!
Rollin joined Johnson Price & Sprinkle, PA, (JPS) in 1997 and became a shareholder in the firm in 2007. Rollin provides tax, assurance and consulting services with a focus on manufacturing and distribution; construction and real estate development; and private resorts and country clubs. Rollin also has extensive experience working with purchasing and marketing cooperatives, as well as clients that have multi-state and international activities. In his free time, Rollin enjoys spending time with his wife and son, as well as playing basketball, mountain biking, photography, reading and occasionally playing the guitar. Rollin is also involved in a variety of opportunities at the church he and his wife attend.