North Carolina Payroll Tax Penalties & Interest
Checklist
Understanding North Carolina Withholding Tax Penalties
and Interest
North Carolina withholding tax penalties and interest are charges the North Carolina
Department of Revenue applies when employers file or pay state income tax withholding late or fail to file or pay at all. These charges appear on NCDOR notices and accrue daily until the balance is paid.
Penalties are assessed for specific failures, such as missing filing deadlines or failing to pay taxes when due. Interest accrues automatically on unpaid balances from the original due date until payment is received in full.
The withholding tax system requires employers to withhold state income tax from employee wages and remit it to NCDOR according to assigned filing frequencies. Late filing penalties equal 5% of the tax due per month or part of a month, with a maximum penalty of 25%. Late payment penalties equal five percent of the tax not paid by the original due date for taxes assessed after January 1, 2023.
Beginning July 1, 2027, the late payment penalty rate changes to 2% per month, with a maximum of 10%. Interest accrues at seven percent annually for the period January 1 through
June 30, 2026, and rates are updated semi-annually by the Secretary of Revenue.
Why NCDOR Assesses These Charges
The North Carolina Department of Revenue applies penalties to enforce compliance with filing and payment deadlines established under state law. Penalties serve as administrative consequences for failure to meet statutory obligations.
Interest compensates the state for the delayed receipt of funds that should have been paid on time. Both penalties and interest are calculated in accordance with North Carolina General
Statutes and applied uniformly across all withholding tax accounts.
NCDOR issues penalty and interest notices after determining that a filing or payment obligation was not met. The notices detail the tax period affected, the penalty type assessed, the interest calculated through the notice date, and the total amount currently due. Additional interest continues to accrue daily on unpaid balances even after the notice is issued.
Consequences of Non-Response
Ignoring penalties and interest notices results in the continued accumulation of interest on the unpaid balance at the current statutory rate. NCDOR may pursue forced collection action, including wage garnishment, bank levies, and seizure of personal or business property. The
Department may issue a Certificate of Tax Liability, which becomes a public record and places a judgment on real or personal property. A Certificate of Tax Liability may appear on credit reports and must be satisfied before a clear title to property can be obtained.
Any tax, penalty, or interest not paid within 60 days after it becomes collectible under North
Carolina law is subject to a 20% collection assistance fee. This fee is added to the total balance and may be avoided only by paying in full or establishing an installment agreement before the
60-day period expires. Once the collection assistance fee is assessed, it remains part of the balance even if a payment plan is later established.
What the Notice Does Not Mean
Receiving a penalty and interest notice does not mean NCDOR has filed a lawsuit, seized property, or closed your withholding account. The notice is an administrative assessment informing you of charges applied to your account.
You retain the right to contact NCDOR, request information about the charges, explore payment arrangements, and request penalty relief if eligible circumstances exist. The notice does not prevent you from resolving the balance or addressing errors through established departmental procedures.
Required Actions After Receiving a Notice
Step 1: Verify All Notice Details
Review the notice date, tax period covered, account number, and total amount due. Confirm that the business name and identification information match your records. Check the breakdown of tax, penalties, and interest shown on any attached statement. Note the payment due date and contact information provided. Keep the original notice in a secure location with your tax records.
Step 2: Compare Notice Information to Your Records
Gather all payroll records, filed withholding returns, and payment confirmations for the tax periods listed on the notice. Locate bank statements or payment processor records showing when payments were sent to NCDOR. Collect copies of any prior correspondence with the
Department regarding your withholding account. Document any discrepancies between the notice and your records.
Step 3: Contact NCDOR Immediately
Call the phone number on your notice or contact the Taxpayer Assistance and Collection Center at 1-877-252-3052. Request clarification on which tax periods the penalties and interest apply to and ask the representative to explain how the amounts were calculated. Confirm the current total balance, including interest accrued since the notice date. Inquire about payment options, including installment agreements. Document the representative’s name, the date of your call, and all information provided.
Step 4: Review Current Penalty and Interest Rates
Visit the North Carolina Department of Revenue website at tax.nc.gov to confirm current penalty rates and interest rates. Review the Penalty Waiver Policy to understand when penalties may be reduced or waived. Check for any published guidelines on penalty relief eligibility and required documentation. Note any deadlines for requesting penalty reconsideration or filing formal waiver requests.
Step 5: Determine Your Payment Ability
Calculate the total amount due, including tax, penalties, and current interest. Assess whether you can pay the full balance immediately. If full payment is possible, confirm the accepted payment methods in the notice or on the NCDOR website. If you cannot pay in full, determine what amount you can pay now and what monthly payment you could sustain.
Step 6: Explore Installment Agreement Options
Installment agreements cannot be established until you receive a Notice of Collection from
NCDOR. Upon receiving a Notice of Collection, you may request an installment agreement using Form RO-1033. Installment agreements require automatic bank draft payments unless you do not have a bank account.
Standard agreements are limited to eighteen monthly installments. Interest continues to accrue during installment agreements until the balance is paid in full. Exceptions to standard requirements may be granted if you demonstrate financial inability to meet the standard terms or if your liability results from a multi-period audit assessment.
Step 7: Request Penalty Relief If Eligible
Contact NCDOR to inquire about penalty waiver procedures and eligibility. Use Form NC-5500 to request a waiver of penalties for withholding tax. The Department considers reasonable cause, good compliance history, and specific circumstances outlined in the Penalty Waiver
Policy. Submit all required supporting documentation with your waiver request. Send your request via a method that provides proof of delivery and retain copies of everything submitted.
- Do not ignore notices or delay contacting NCDOR, as interest accrues daily and
- Do not send payments without including your account number or clear identification
- Do not assume penalties will be waived automatically, as penalty relief requires a formal
- Do not miss follow-up deadlines when NCDOR requests additional information, as
- State enforcement notices and responses
- Sales tax audits, assessments, and collections
- Payroll & trust fund tax enforcement issues
- Penalty and interest reduction options
- Payment plans and state tax relief eligibility
- Representation before state tax agencies
Step 8: Document All Communications
Keep written records of all correspondence, including dates, names of representatives, and information discussed or provided. Save copies of receipts, payment confirmations, and written responses from NCDOR. Note any promised follow-up actions or deadlines given by
Department personnel. Set reminders to follow up if you do not receive expected correspondence within stated timeframes.
Common Errors to Avoid collection action may proceed. information, as payments may not be applied correctly. written request with supporting documentation. delays can trigger further enforcement action.
Frequently Asked Questions
Are penalties and interest calculated differently?
Yes, penalties are specific charges assessed for filing or payment failures at rates established by statute. Interest is a daily charge on unpaid tax balances calculated at the current statutory rate and compounded until payment is received.
Can NCDOR reduce or eliminate penalties?
NCDOR may grant penalty relief under the circumstances described in the Penalty Waiver
Policy. You must submit Form NC-5500 with documentation supporting your request. Eligibility considerations include reasonable cause, good compliance history, and specific circumstances recognized under departmental policy.
Does interest stop accruing during a payment plan?
No, interest continues to accrue on any unpaid balance throughout the term of an installment agreement until the full amount is paid. However, establishing a payment plan before the 60-day deadline prevents the assessment of the 20% collection assistance fee.
How do I appeal a penalty assessment?
Submit Form NC-5500 to request a penalty waiver or reduction. Include a detailed explanation of why the penalty should be waived and provide supporting documentation. NCDOR will review your request and issue a written determination. The Department’s appeals process is available if you disagree with the proposed assessments of additional tax.
Moving Forward
Withholding tax penalties and interest are administrative charges that accumulate rapidly when left unaddressed. Understanding the specific rates, deadlines, and resolution options available through NCDOR enables you to take appropriate action based on your circumstances.
Contact the North Carolina Department of Revenue immediately upon receiving a penalty and interest notice to discuss your balance, clarify charges, and explore payment arrangements or penalty relief options. Taking prompt action prevents further accumulation of interest and collection assistance fees while demonstrating a good-faith effort to resolve your withholding tax obligations.
Facing State Tax Enforcement Action?
If you’ve received a notice related to sales tax or payroll tax enforcement and aren’t sure how to respond, our team can help you understand your options and next steps.
We help with:
20+ years experience • Same-day reviews available
