Employees See First Signs Of Changes To Tax Code
This month, most employees across North Carolina have been asked by their bosses to fill out forms that will dictate how much money the state withholds from every paycheck. Called NC-4 forms, they're the first real sign for many people that the state's tax code is set to change.
McKinney advertising agency in Durham is a place where employees spend long hours at work to meet deadlines for big clients from ESPN to Mentos mints.
So the company's HR person, Lea Wharton, does everything she can to make administrative tasks—including handing in the NC-4s—as easy as possible for employees:
"Yes, the elusive box. It's actually in between the talent management space and finance."
We walk past seating areas with comfortable couches and colorful pillows to a file cabinet in an office area. There's a box perched on top, but it's empty. So Wharton turns to her payroll supervisor, Cheryl Szwedo.
Wharton asks, "Cheryl, have we had any forms turned in today?"
"Yeah, about ten today, we probably only have about ten percent of what we're supposed to have," says Szwedo. " So we have I think a hundred and seventy employees right now and we have like thirty forms. So we're missing quite a lot still."
And so are many other employees, who're fighting everything from the holiday rush to employee apathy to confusion over the forms. But most employees do have to fill them out.
WHY ARE THE FORMS CHANGING?
Earlier in the year, state legislators made significant changes to the tax code.
The individual state income tax rate in 2014 is going down to a flat 5.8 percent, which means the amount of money in your paycheck will change, as well as the amount you will owe the state in income taxes for 2014. The withholding forms are intended to help people choose how much of their taxes to pay on a monthly basis.
"The purpose of withholding is to approximate the amount of taxes you're going ot have to pay on that income, so that you don't have a huge tax bill in April," says Cindy Avrette, a tax analyst at the General Assembly. She explained the purpose of the forms before a legislative committee last week.
"If too much is withheld from your paycheck, what happens, you're going to be entitled to a refund. But what that also means is that you receive less each paycheck and in essence the state has an interest-free loan from you."
OTHER CHANGES TO COME
1. Beginning next year, taxpayers will no longer be able to claim personal exemptions for themselves, spouses, children, or dependents.
2. The standard deduction in 2014 has risen to $15,000 for married taxpayers filing jointly.
Republican Senator Bob Rucho says those changes will be good for the state.
So what we think is that gives people more money in their pockets to spend as they choose, be it on their child's education, savings accounts, or spending it on goods and services, which stimulates the economy in North Carolina and hopefully creates a lot more good jobs.
But not everyone is so positive. Alexandra Sirota is the director of the Budget and Tax Center, a progressive non-profit policy organization in Raleigh. Republican legislative leaders say the changes will result in lower taxes across the board- but Sirota says that's not true:
For many North Carolinians, particularly those earning less than $84,000 , it will be a tax increase, when you take into account all of the income tax changes and the sales tax changes, at the same time that we're providing a big tax cut to those at the very top, and profitable corporations.
Sirota says for many families, the increase in the standard deduction won't make up for the loss of many personal exemptions that have been eliminated in 2014.
COMPANIES TRY TO IMPLEMENT THE CHANGES
Back at McKinney, the advertising agency, employees who've turned in their forms aren't sure exactly what the changes mean for them. Account director Katie Clark says the forms were hard to understand.
"I think that it seemed really complicated," said Clark. "And I knew I had to go and do a bunch of research. I gave up very quickly and found out that I just needed to enter zero. But it took me a few hours to figure out that really I just needed to put a zero down."
WHAT MIGHT YOU NEED?
There are two forms taxpayers can use to determine how much to withhold:
1. The traditional NC-4 includes a worksheet that can help people figure out how much to deduct.
2. The NC-4 EZ (This form is shorter that the NC-4, and will likely work for most taxpayers.)