North Carolina Payroll Taxes Explained for Business Owners
Published on December 09, 2025
As a North Carolina business owner, payroll taxes are part of your routine operations. Whether you have a few employees or hundreds, understanding the basics of how these taxes work helps you make informed decisions and avoid costly mistakes.
To build (and maintain) your reputation as a responsible employer, here's what you should know about payroll taxes.
Understanding the Basics of Payroll Taxes
Payroll taxes include federal taxes, state withholding, and unemployment insurance. While federal payroll taxes apply nationwide, North Carolina has state-specific requirements that differ from surrounding states.
You, the business owner, are responsible for withholding the proper amounts of federal income, Social Security, and Medicare taxes from your employees' paychecks. You'll send these amounts to the IRS along with your employer contributions. At the state government level, North Carolina also requires you to withhold income tax based on employee wages and filing statuses.
Payroll taxes affect your employees directly. If you withhold too little, they may face a surprise tax bill. If you withhold too much, they'll see smaller paychecks than necessary. To maintain the right balance, you need accurate calculations and up-to-date information on both federal and state tax rates.
North Carolina State Income Tax Withholding
North Carolina's state income tax is flat, so all employees pay the same rate. In 2025, the rate is 4.25% and is expected to drop to 3.99% after 2025, with the possibility of an even lower percentage after 2026.1
To determine each employee's withholding, use the North Carolina Employee's Withholding Allowance Certificate (NC-4). Have employees complete this form at the time of hiring or when their personal details change. It calculates the correct withholding based on filing status and claimed allowances.
You're responsible for remitting withheld taxes to the North Carolina Department of Revenue (NCDOR) on a regular schedule. The frequency of your payments—monthly, quarterly, or annually—depends on the total amount withheld. Failing to deposit these funds on time can result in penalties and interest charges, so it's essential to have a reliable payroll system.
Unemployment Insurance (UI) Contributions
Additionally, North Carolina employers are required to pay unemployment insurance taxes to the North Carolina Department of Employment Security (DES). These funds support workers who lose their jobs through no fault of their own.
Your unemployment tax rate is based on your industry, employee count, and claims history. Newly established employers start at a standard rate that adjusts over time as the business establishes a record. Fewer unemployment claims generally mean lower rates.
You'll report and pay unemployment taxes quarterly, including wage reports for all employees. DES audits employers routinely, so make sure your records stay accurate. Errors in reporting or misclassifying workers can result in back payments and fines, making it a good idea to verify each classification before submitting.
Federal Payroll Tax Obligations
Federal payroll taxes are also essential. You must withhold federal income tax (via the W-4), Social Security, and Medicare taxes under the Federal Insurance Contributions Act (FICA). As of 2024:
- Social Security tax = 6.2% of employee wages, up to the annual wage base limit (currently $168,600).2
- Medicare tax = 1.45% on all wages, with an additional 0.9% surtax for single employees earning over $200,000 per year.3
Accountants in North Carolina can confirm that, as the employer, you're required to match employee contributions for Social Security and Medicare (doubling the total IRS payment). You'll make those deposits regularly through the Electronic Federal Tax Payment System. Late or incorrect payments can result in significant penalties.
The Importance of Worker Classification
Misclassifying workers is a common payroll mistake. Employees are required to withhold and make employer contributions for FICA and unemployment, while independent contractors are responsible for paying their own taxes.
Classifying an employee as a contractor could result in you owing unpaid taxes and penalties. North Carolina cracks down on misclassifications, especially under the Employee Fair Classification Act. Review your worker agreements and reporting regularly to stay compliant.
Managing Payroll Taxes Efficiently
Handling payroll taxes can be complex. However, you can streamline the process and reduce stress in a couple of ways. Consider payroll software or outsourcing to certified business accountants to help you manage deductions and filings accurately. Ensure any system works with your time-tracking and benefits tools for easier compliance.
Stay proactive with deadlines and records. Maintain a calendar of filing dates for federal and state agencies, and store documents for a minimum of four years. Regular payroll checks help catch issues early.
Review your payroll processes to ensure compliance when expanding or hiring new employees. Changes may affect tax liability, withholding frequency, or unemployment rate, so schedule periodic reviews with your CPA.
Common Payroll Tax Mistakes to Avoid
Even experienced business owners can slip up when managing payroll. Some of the most frequent errors include:
- Missing deposit deadlines or failing to remit withheld taxes on time.
- Incorrectly calculating withholding amounts based on outdated tax tables.
- Not updating employee forms when personal or financial circumstances change.
Avoid mistakes with regular audits and oversight. Consistent reviews ensure numbers align between your books, filings, and paychecks.
Handle Your Payroll Taxes with Confidence
How you handle payroll taxes determines your organization's compliance and stability. You can better manage state withholding, unemployment contributions, and federal obligations with the right systems and guidance in place.
Accurate records and professional support strengthen your business. Payroll taxes reflect how responsibly you manage your company and employees. Handle them with care for long-term success. Contact your local NC tax accountant for assistance.
1https://www.ncdor.gov/taxes-forms/individual-income-tax/tax-rate-schedules?utm_source=chatgpt.com
2https://www.irs.gov/pub/irs-prior/p15--2024.pdf
3https://www.irs.gov/taxtopics/tc751
