North Carolina ITIN Withholding Requirements for Nonresident Construction Contractors

If you are a construction business owner in North Carolina and you pay people who have an Independent Taxpayer Identification Number (ITIN), you must be aware of the unique tax implications this causes for your business. Otherwise, you risk noncompliance with the North Caroline Department of Revenue (NCDOR), which has recently cracked down on construction companies’ withholdings. Here’s what you and your HR team need to know to handle ITIN holders properly.  

What Is an ITIN Contractor? 

An ITIN contractor or subcontractor—also known as a nonresident contractor—is an individual (often a sole proprietor) who: 

• Performs services (e.g., labor, subcontracted tasks) for a construction company in North Carolina. 
• Uses an ITIN for tax reporting, instead of a Social Security Number (SSN) or Employer Identification Number (EIN). 
• Is classified as an independent contractor, not an employee. 

Tip: All ITINs begin with the number "9," making it easier to recognize when reviewing contractor information. 

Withholding Threshold & Rate: When ITIN Tax Provisions Apply 

You do not have to apply unique tax provisions to every person who works for you and has an ITIN. If you pay more than $1,500 per calendar year to an ITIN contractor, then you’re required to withhold 4% of those payments. 

When the Threshold Is Crossed Mid-Year 

Sometimes, plans and payments change. If payments were set to be under $1,500 but later exceeded that amount, withholding starts with the payment that causes the total to surpass $1,500.  

Good news: You do not need to withhold prior payments below the threshold retroactively. 

Exceptions & Exemptions to Withholding  

You do not need to withhold 4% for: 

• Corporations or LLCs with a Certificate of Authority from the NC Secretary of State. 
• Partnerships with a permanent place of business in NC. 
• Tax-exempt entities under G.S. 105‑130.11. 
• Clergy members who are ordained or licensed. 
• ITIN contractors temporarily admitted under an H‑2A visa performing agricultural or disaster‑related work, not subject to federal withholding requirements. 

That said, even though some directive language (e.g., PD‑10‑1) focuses on performances, speeches, entertainment, or media creation, North Carolina’s statutes and guidance make clear that the withholding rule does apply to ITIN contractors in general, including those in construction. 

Reporting & Compliance Requirements for Construction Businesses with Nonresident Contractors 

Filing & Withholding 

Below is a quick how-to on properly filing and withholding for ITIN-carrying contractors:  

• Remember: withhold 4% on applicable payments. 
• Hold it in trust for NCDOR. 
• Register for an NC withholding tax account using Form NC‑BR if you expect to make such payments. 
• Submit payments and reports via: 

• • NC‑5 or NC‑5Q returns (depending on filing frequency: quarterly, monthly, or semiweekly). 
  • Form NC‑3 for annual reconciliation. 
  • Provide each contractor with a 1099 form (e.g., 1099-NEC or federal 1099-MISC that includes NC withholding). 

Of course, our team is available to complete this process on your construction business's behalf. 

Penalties for Non-Compliance with NCDOR Regulations 

NCDOR considers withheld funds as held in trust. Failing to remit them may result in: 

• Civil penalties. 
• Accrued interest. 
• Criminal liability. 
• Audit assessments (these have been a major enforcement focus for construction companies). 

Why ITIN Contractor Regulations Matter in Construction 

The construction industry frequently uses subcontractors, including those with ITINs. As mentioned, NCDOR audits have looked closely at this area, and construction companies have faced substantial assessments when not in full compliance. 

ITIN Contractors: At-a-Glance Guide for Construction Business Owners  

Top 5 Best Practices for the Construction Sector & ITIN Contractors in North Carolina  

1. Identify ITIN contractors by checking TINs—those beginning with "9" signal an ITIN. 
2. Track your payments during the year. Once payments to a contractor exceed $1,500, begin withholding. 
3. Register for withholding, if not already. Consider separate withholding accounts for non‑wage compensation. 
4. Withhold 4%, remit on time, file returns, and issue forms as required. 
5. Keep documentation of withholding, exemption claims, and contractor status to support compliance. 

Last but not least: Seek professional guidance. If you’re unsure of how to approach taxes for ITIN contractors, or if NCDOR is auditing you, we can help. 

What About ITIN Contractors in Other American States? 

We focused on North Carolina because of its crackdown on the construction industry and its compliance with tax withholding requirements. However, construction businesses in every state rely on labor from nonresidents.  

While each state has slightly different regulations, a good first step is to identify workers with an ITIN. You must treat them as independent contractors, not employees. Misclassification is a red flag to the IRS and the Department of Labor. With your list of ITIN contractors, an experienced tax professional can guide you on necessary withholdings and other tax implications in your state or states of operation.