North Carolina payroll taxes: Your 2025 guide to staying compliant

North Carolina, with its fast-growing economy and diverse industries, is home to more than 1.1 million small businesses. These small enterprises make up 99% of the state’s business landscape. North Carolina is a good place for businesses. However, employers need to understand the payroll tax rules. These rules apply to companies based in the state and those with workers there. Understanding these rules is essential for maintaining compliance and securing smooth payroll operations.

Let’s get into the key aspects of North Carolina payroll taxes. Understanding these is crucial for keeping your business compliant and your employees satisfied.

Jump to:

• What are payroll taxes?
• Understanding North Carolina state payroll taxes
• Other important tax considerations
• Employer responsibilities for payroll taxes in North Carolina
• Filing payroll tax returns in North Carolina
• Common payroll tax mistakes in North Carolina (and how to avoid them)
• How to manage your small business payroll obligations
• Leverage payroll software for compliance in North Carolina

What are payroll taxes?

Payroll taxes are taxes based on wages, salaries, or other compensation that both employers and employees must pay. While income taxes are also withheld through payroll, payroll taxes specifically fund programs like Social Security, Medicare, and unemployment insurance.

Understanding North Carolina state payroll taxes

When starting a business in North Carolina, you'll need to understand both federal and state payroll taxes.

Federal payroll taxes

Payroll taxes are mandatory and encompass both federal and state requirements. 

Federal payroll taxes include:

• Federal income tax: This is withheld from each employee's paycheck based on their W-4 form and the current IRS tax brackets. You'll be responsible for calculating the correct amount, withholding it, and then sending it to the IRS.
• Social Security and Medicare taxes: Both of these taxes have a portion paid by the employee and a matching portion paid by you, the employer. For Social Security, the combined rate is 12.4% on the first $176,100 of wages in 2025. For Medicare, it's 2.9% on all wages, with an extra 0.9% for higher earners. You'll withhold the employee's portion and match it.
• Federal Unemployment Tax (FUTA): This is paid solely by you at a rate of 6% on the first $7,000 of each employee's wages. However, most employers get a 5.4% credit, reducing the rate to 0.6%. The graphic below lists some best practices for managing your FUTA obligations.

North Carolina state payroll taxes

In addition to federal payroll taxes, North Carolina employers must comply with several state-specific payroll taxes.

• North Carolina Income Tax Withholding: Employers must withhold state income tax from employee wages. North Carolina has a flat income tax rate of 4.25% for all taxable income in 2025. This makes withholding calculations easy, unlike states with graduated rates.
• State Unemployment Insurance (UI): Employers contribute to North Carolina’s unemployment insurance program. The taxable wage base for UI is $32,600 per employee per year. Contribution rates vary depending on the employer’s experience rating, generally ranging from 0.06% to 5.76%. New employers usually begin with a standard rate set by the state.
• Workers’ Compensation Insurance: Employers in North Carolina must provide workers’ compensation insurance if they have three or more employees. This isn’t a payroll tax, but it requires premium payments. These payments depend on payroll amounts and the risks of the industry.

North Carolina local payroll taxes

No cities or counties in North Carolina levy local income taxes. Some cities and counties in North Carolina may charge local business license fees. This is on top of federal and state payroll taxes. These obligations can vary depending on your business location. Here are some ways to identify any local fees you might need to pay:

1. Check with your local government to verify whether your business is subject to any license requirements or fees. They can provide the most current details on rates, regulations, and licensing requirements specific to your area.
2. Consult a tax professional if you’re uncertain about local payroll tax rules or need help ensuring compliance. An accountant specializing in North Carolina payroll taxes helps you find local tax obligations. They will also keep your business on track.

Other important tax considerations

Multiple locations

If your business has employees working in multiple cities or counties, you may be subject to different local licensing requirements and fees for each location.

Changing rates

Local tax rates can change over time, so it's important to stay informed about any updates that may affect your business.

Employer responsibilities for payroll taxes in North Carolina

As a North Carolina employer, you're responsible for managing a complex array of federal and state payroll taxes, which involves careful calculation, timely withholding, and accurate reporting to various government agencies. Here’s an overview of what you should know.

Registering for payroll taxes

Employers in North Carolina must register for payroll taxes. They need to do this before starting their business operations. Registering helps manage important tasks. These include unemployment insurance contributions, state income tax withholding, and timely wage reporting. Here are the key steps to complete your payroll tax registration:

• Obtain an Employer Identification Number (EIN): Before you register for state payroll taxes, first get a federal Employer Identification Number (EIN) from the IRS. The EIN is necessary for federal tax reporting and setting up state tax accounts. You can apply for an EIN online through the IRS website at no cost.
• Register with the North Carolina Department of Revenue (NCDOR): After getting your EIN, register your business with the North Carolina Department of Revenue. Do this for state income tax withholding using the NCDOR online portal. After you register, you will get a North Carolina withholding tax account number. You will use this number for filing tax returns and paying payroll taxes.
• Register with the North Carolina Division of Employment Security (DES): Employers must register with the Division of Employment Security. Create an employer account for unemployment insurance. You can do this online through the DES NSUITS portal. When you register, you will receive an employer account number. You must file quarterly wage reports and pay unemployment insurance taxes.
• Report New Hires: North Carolina law states that employers must report all new or rehired employees within 10 days of their start date. This helps the state enforce child support orders and prevent fraud. Submit reports to the North Carolina New Hire Reporting Center, which accepts submissions online, by mail, or by fax.

Calculating payroll taxes

Accurately calculating payroll taxes is crucial for maintaining compliance and avoiding costly penalties. North Carolina employers have several tools at their disposal to ensure correct tax calculations:

• Check government websites: The North Carolina Department of Revenue offers tax rate tables, withholding formulas, and guides for employers. These tools help ensure correct income tax withholding. These resources are regularly updated and available on the department’s website.
• Payroll software: Some small business software payroll programs have built-in North Carolina tax tables that automate calculations, saving you time and minimizing the chance for errors.
• Professional services: If you prefer to outsource payroll, a professional payroll service can handle everything for you.

Whichever method you choose, make sure you stay updated on the current tax rates and wage limits, as these can change every year.

Withholding state payroll taxes

After you calculate payroll taxes, withhold the right amounts from your employees’ pay. Then, send those amounts to the correct state and federal agencies. Complying with North Carolina's payroll tax deadlines and payment rules is crucial. This helps you avoid late fees and penalties.

State Income Tax: North Carolina needs employers to withhold state income tax from employee pay. This is from Form NC-4 (Employee’s Withholding Allowance Certificate) and the latest state tables for withholding. The 2025 flat income tax rate is 4.25%, a decrease from previous years, and it applies to all income brackets without exception.

• Example: If an employee earns $4,000 in gross monthly wages, you would withhold $170 in state income tax (4.25% of $4,000), assuming no additional allowances or deductions.

Unemployment Insurance (UI): Employers in North Carolina bear full responsibility for paying unemployment insurance taxes. The taxable wage base for 2025 is $29,600. Employer contribution rates change based on experience ratings. New employers usually begin at a standard rate, such as 1.0%.

• Example: If a new employer pays an employee $3,000 in wages during the month and has a 1.0% UI rate, they would owe $30 in UI tax for that employee.

By applying these calculations to each paycheck, you ensure accurate withholdings and compliance with state requirements.

Remitting state payroll taxes

If you withhold taxes from employee paychecks in North Carolina, you must file payroll tax returns with the state. Proper filing ensures you stay compliant with state regulations and avoid costly penalties.

Filing payroll tax returns in North Carolina

North Carolina requires employers to submit both quarterly and annual payroll tax reports. These filings include details on employee wages, state income tax withheld, and employer contributions, such as unemployment insurance. Stay updated on due dates and filing methods. Check the North Carolina Department of Revenue and the Division of Employment Security for details.

Quarterly requirements