Taxes must be withheld on “wages,” which include all cash and noncash payments for services performed by an employee. North Carolina has conformed its income tax statutes to the definitions of taxable income set out in the Internal Revenue Code. Compensation that is subject to federal withholding is also subject to state withholding.
Exceptions. Payments for some services, including the following, are exempt from withholding:
• Domestic service in a private home or fraternity
Dependent care assistance up to $5,000 is not subject to withholding.
Severance payments of up to $35,000 paid because of the employee's permanent, involuntary termination from employment through no fault of the employee are exempt from North Carolina income tax and are not subject to state withholding.