systems
Effective Date: 07/01/05

Deductions

Policy Statement

It is the policy of the State of North Carolina that appropriate deductions be applied to payroll in accordance with applicable rules and statutes.

Authoritative References

G.S. 143B-426.39 Powers and Duties of the State Controller

Various federal statutes*

Explanation of Policy


Deductions

Deductions are amounts withheld from an employee's gross wages.  Deductions may be statutorily mandated, legally garnished, or voluntary.  There are basically three types of deductions processed on the Central Payroll System:

Post-tax deductions (after-tax) - Deductions that do not affect the employee's taxable wages.

Deferred deductions - Deductions that reduce the employee's taxable wages for income tax withholding.

Pre-tax deductions (before-tax) - Deductions that reduce the employee's taxable wages for income tax and FICA tax withholding.

Statutory Deductions

Statutory deductions are mandated by law. The State of North Carolina is responsible for withholding, reporting, and remitting the following deductions, as appropriate:

  • Retirement contributions
  • Social Security (FICA) withholdings
  • Federal Income Tax withholdings
  • State Income Tax withholdings

Retirement Contributions

An employee with a permanent, probationary, time-limited or trainee appointment, who works at least 30 hours per week for nine months of the year, is automatically a member of the Teacher's and State Employees Retirement System. 

Employer and employee contribution percentages are established by the North Carolina General Assembly. The employee's current share of the cost is six percent of their salary and is automatically deducted from the employee's paycheck on a before-tax basis.

Optional Retirement Plans are offered to University faculty members only in lieu of the Teacher's and State Employees Retirement Plan.  The Optional Plan choices are listed below:

Fidelity

TIAA-CREF

Lincoln

VALIC

FICA Tax Withholding

The FICA tax rate is comprised of two parts, OASDI and HI or MQFE,  which are calculated separately and then combined.  The rates for each category are subject to change each year.  The current FICA tax rates, including any wage limitations and employer costs, are available in section D.02 Current Year Payroll Processing Rate Table. In situations where an employee has a pre-tax (Code Section 125) deduction, the subject wages is calculated by reducing the employee's gross wages by the amount of the pre-tax deduction. The following are pre-tax deductions:

Pre-Tax Deductions - Code Section 125

Deduction Description

Deduction Codes

Deferred Parking

094 and 098

Health Insurance

400 - 408

Flex Plans

445 - 452 and 454

For information related to FICA tax exemptions, refer to the Payroll Taxes section of this manual. 

Income Tax Withholding

In accordance with federal and state laws, income taxes are withheld from employee gross pay based on tax withholding schedules and information submitted by each employee on a W-4 Employee's Withholding Allowance Certificate form and a NC-4 Employee's Withholding Allowance form. 

Effective October 3, 2000, the State of North Carolina implemented an aggregate tax method for certain supplemental payments made to employees.  Instead of using the flat withholding rates for supplemental pay, the state began to include payments for longevity, bonus and the different types of premium pay with regular pay in performing tax withholding calculations.  The aggregate method uses the tax table to calculate income tax withholdings, which is preferable because the flat withholding rates do not consider marital status or withholding allowances claimed by the employee.  The current year flat tax withholding rates are available in section D.02 Current Year Payroll Processing Rage Table.

Wages that are subject to income tax withholding are calculated by reducing the employee's gross wages by the employee's share of health insurance premiums, employee retirement contributions, and selected deferred deductions. The following deductions and retirement contributions currently affect the calculation of Federal and State taxable wages:

Deduction Description

Deduction Codes

Perquisites

001 - 004

Pre-Tax Parking

094 and 098

Annuity 403(b)

200

NC 401(k) Plan

225

Deferred Compensation (457)

249

Health Insurance

400 - 413

Flex Plans

445 - 452 and 454

State Retirement Contribution

N/A

For information related to Federal and State Income Tax Exemptions, refer to the Payroll Taxes section of this manual. 

Garnishments and Levies

A garnishment is a legal process resulting from a court order issued from any court of record in North Carolina. The order directs the state to withhold a specified amount of money from the pay of a specific employee, to be paid to the court in settlement of a judgment rendered by the court against that employee.

A levy is an act of collecting, by deduction from an employee's pay, any governmental taxes and/or assessments due from the employee to the governmental body. This action is separate from and in addition to amounts normally withheld for income tax purposes. A notice of levy is issued by the governmental body directly to the state. No court is involved.

The rules governing the amounts withheld from an employee's pay for garnishments and levies vary, based on the types of deductions being processed.

Type of Deduction

Deduction Rate (no more than)

Central Payroll Deduction Code

County Garnishments

10% of gross pay

900

Internal Revenue Service (IRS) Levy

Based on a calculation of exemptions and net pay (see Form OSCPXA 04*)

901

NC Department of Revenue Garnishment

10% of gross pay

902

Court Ordered Child Support

40% of net disposable earnings

903

City Garnishment

10% of gross pay

904

Hospital Garnishment

10% of net disposable earnings

905

Ambulance Service

10% of gross pay

906

Unemployment Benefits Reimbursement

10% of gross pay

907

Court Ordered Bankruptcy/Alimony Garnishment

10% of net disposable earnings

908

Court Ordered  Education Loan Default Garnishment

15% of net disposable earnings

909

Employee Restitution

10% of net disposable earnings

910

Social Security Administration Garnishment Based on a calculation of exemptions and net pay (see Form OSCPXA 04*)
911

*Form OSCPXA 04 is located at: http://www.ncosc.net/sigdocs/sig_docs/payroll/Payroll_Forms.html

Net disposable earnings are calculated as follows:

Net Disposable Earnings  =

Gross Pay

Less: Retirement

Less: FICA

Less: Federal Taxes

Less: State Taxes

Less: Any Garnishments/Levies

Garnishments and levies are paid to the appropriate agencies at month end, even in December, when the monthly payroll is processed early.

Prioritization of Garnishments and Levies

If multiple orders for garnishments or levies are received for a single employee, they should be processed in the following order:

  • Court Ordered Child Support
    • Court Ordered Child Support takes priority over any garnishment, levy or deduction.
    • Where multiple court orders for child support exist, they are processed in the order in which they were received.  Notify the appropriate clerk of court in writing of any attachments that cannot be completely satisfied.
  • All Other Garnishments or Levies (except federal tax levies)
    • Process after all Court Ordered Child Support garnishments are applied.
    • Priority is based on the order in which the garnishments/levies were received.  Notify, in writing, the appropriate clerk of court or levying agency of any attachments that cannot be completely satisfied.
  • Federal Tax Levies
    • Process after all other garnishments/levies are applied.
    • Levy remains in effect until the IRS sends a release form.
    • Employee cannot apply for any new voluntary deductions until the levy is satisfied.
    • Child support court orders received after the date of the levy cannot be used to calculate the employee's exemption amount.

Note:  All orders and levies must be answered regardless of whether they are deducted.  An agency or university can be held liable for the full judgment amount if the authority issuing the garnishment or levy is not notified.

Special Considerations Related to Out-of-State Garnishments and Levies

Federally Mandated Garnishments

Out-of-State Child Support Orders: The Uniform Interstate Family Support Act (UIFSA) requires employers to honor out-of-state child support orders. The act also provides that while the order controls the amount deducted and the person or agency designated to receive the payments, the administrative process (e.g., timing and frequency of deduction and maximum limits) is controlled by the employee's work state.

Only child support orders and any withholding order issued by a federal court or federal agency are honored.

Out-of-State Creditor Garnishments or Levies

Out-of-state garnishments or levies are not honored.  However, all out-of-state orders must still be answered, stating that such garnishments are not valid in North Carolina.

Voluntary Deductions

An employee with a permanent, probationary, time-limited or trainee appointment, working at least 30 hours per week, is eligible for voluntary payroll deductions.  Voluntary deductions are made only when authorized in writing by the employee requesting the deduction.  Categories of voluntary deductions include the following:

  • Voluntary Supplemental Retirement Plans
  • United States Savings Bonds
  • Medical Insurance
  • NC Flex Plans
  • Supplemental Insurance
  • Perquisites
  • Other Miscellaneous Deductions

Voluntary Supplemental Retirement Plans

The State offers the following voluntary deferred tax supplemental retirement plans to provide a way for an employee to save money and supplement state retirement benefits by making contributions through payroll reduction and postpone paying tax on these contributions until after the employee retires:

Tax Deferred Deduction Description

Central Payroll Deduction Code

403(b) Tax-Sheltered Annuities (limited exclusively for employees of educational, religious and charitable organizations)

200

State of North Carolina 401(k) Plan

225

State of North Carolina 457 Deferred Compensation Plan

249

In accordance with the Internal Revenue Code, these plans have annual maximum contribution limits and, in some cases, contributions to one plan may affect contribution limits to another plan (i.e., 401(k) and 403(b) plans). An employee should consult with the plan administrator, the carrier representative or the agency/university benefits representative for more information about maximum contribution limits and coordination of plans. 

These voluntary supplemental retirement plans offer significant tax advantages including:

  • Money placed into a plan is not considered as taxable income for that year for federal and state income tax purposes, thus lowering an individual's income tax liability.
  • Money is only taxed when it is withdrawn. If it is withdrawn after retirement, the employee's income will probably be less and therefore, may be taxed at lower rates.

The State also offers the following voluntary post-tax supplement retirement plan:

Post-Tax Deduction Description

Central Payroll Deduction Code

State of North Carolina Roth 401(k) Plan

591

United States Savings Bonds

State employees may purchase two types of U.S. Savings Bonds, Series EE and Series I, through payroll deductions. An employee may deduct enough funds to purchase multiple Savings Bonds per pay period but are still limited to these two deduction categories.  A $50 I-Series bond is the minimum bond that can be purchased and a $1000 EE or I Series bond is the maximum bond that can be purchased.  Savings Bonds are automatically purchased and sent to the bond owner from the Federal Reserve once the savings add up to the purchase price.

The following U.S. Savings Bond deductions are currently available:

Savings Bond Description

Central Payroll Deduction Code

$100 I-SERIES BOND

302

$200 I-SERIES BOND

303

$500 I-SERIES BOND

304

$1000 I-SERIES BOND

305

$100 EE-SERIES BOND

306

$50 I-SERIES BOND

307

$200 EE-SERIES BOND

308

$500 EE-SERIES BOND

310

$1000 EE-SERIES BOND

312

$100 SECOND I-SERIES BOND

322

$200 SECOND I-SERIES BOND

323

$500 SECOND I-SERIES BOND

324

$1000 SECOND I-SERIES BOND

325

$100 SECOND EE-SERIES BOND

326

$50 SECOND I-SERIES BOND

327

$200 SECOND EE-SERIES BOND

328

$1000 SECOND EE-SERIES BOND

329

$500 SECOND EE-SERIES BOND

330

Medical Insurance Deductions

The State of North Carolina offers three medical insurance plans to permanent employees. These medical insurance plans are set up to be a pre-tax deduction unless the employee signs a waiver letter to have the deduction taken out as post-tax. Corresponding 800 series codes represent post-tax deductions. The medical insurance codes are:

Medical Insurance Description

Central Payroll Deduction Code

Pre-Tax Deduction Code

Post-Tax Deduction Code

NC HEALTH BENEFIT PLAN

400

800

NC HEALTH PLAN-MEDICARE

401

801

NC HEALTH BENEFIT PLAN-0-MATCH

403

803

NC HEALTH PREPAID INS

404

804

TRICARE HOSP PLAN

405

805

TRICARE HOSP PLAN -0- MATCH

407

807

TRICARE PREPAID INS

408

808

NC PPO HEALTH BENEFIT PLAN

410

810

NC PPO HEALTH BENEFIT PLAN-MEDICARE

411

811

NC PPO HEALTH BENEFIT PLAN-0-MATCH

412

812

NC PPO HEALTH BENEFIT PLAN PREPAID INS

413

813

An employee with a permanent, probationary, time-limited or trainee appointment, working at least 30 hours per week, may enroll in the State’s health plans. The State pays 100% of the cost of the coverage for each permanent employee who works 30 hours or more per week. Permanent employees who work 20 but less than 30 hours per week are eligible to participate in the health plans but must pay the full cost of coverage. Dependents' coverage is also available at group rates but is paid by the employee through voluntary payroll deductions.

Participation in the State’s health plans is terminated under the following conditions:

  • Employee separates from State service prior to the 16th of the month – No health insurance deduction is processed in the month of separation and coverage terminates at the end of the month
  • Employee separates from State service on or after the 16th of the month – A final health insurance deduction is processed in the month of separation and coverage continues through the subsequent month

State of North Carolina Teachers' and State Employees' Comprehensive Major Medical Health Plan 

The State of North Carolina Comprehensive Major Medical Plan offers employees with a permanent, probationary, time-limited or trainee appointment medical insurance coverage. Premiums are paid in advance for the subsequent month's insurance coverage. The employee and employer rates are subject to change each year. The current insurance rates for the State Health Plans are available in section D.02 Current Year Payroll Processing Rate Table but are subject to change each year.

More information is available by contacting the agency/university benefits representative or by accessing the State Health Plan website at:

http://statehealthplan.state.nc.us

Tricare Supplement Plan

The Tricare Supplement Plan is offered as an alternative to the State Health Plan. It is a military hospitalization supplement plan that operates similarly to the State Health Plan. Premiums are paid in advance for the subsequent month's insurance coverage. The current insurance rates are available in section D.02 Current Year Payroll Processing Rate Table but are subject to change each year.

NC PPO Health Benefit Plan

The North Carolina PPO Health Benefit Plan offers employees with a permanent, probationary, time-limited or trainee appointment tiered coverage options. It operates similarly to the State Health Plan.

More information is available by contacting the agency/university benefits representative or by accessing the State Health Plan website at:

http://statehealthplan.state.nc.us

NC Flex Plans

The State of North Carolina contracts with vendors to provide an array of voluntary pre-tax plans. NC Flex allows employees to save on payroll deductions for expenses associated with qualifying dependent, health, dental, vision and life plans not covered by regular insurance plans. Contributions are made on a pre-tax basis providing tax savings to employees. 

An employee with a permanent, probationary, time-limited or trainee appointment, working at least 20 hours per week, may enroll in the NC Flex Program.  Participation for new employees begins the first of the month after the enrollment date as long as it is within 30 days from the date of hire.  Plans included in the NC Flex Program are:

NC Flex Plan Description

Central Payroll Deduction Code

DEPENDENT CARE

445

HEALTH CARE

446

NC MUTUAL DENTAL

448

UNUM AD&D (Accidental Death & Dismemberment)

449

SUPERIOR VISION

450

HEALTH CARE PLUS

451

ING GROUP TERM LIFE

452

ALLSTATE CANCER

454

Once enrolled in the NC Flex Program, federal laws regarding pre-tax benefits prohibit changing or stopping participation during the year unless there is a qualifying family status change.

Supplemental Insurance Programs

State agencies and universities offer various supplemental after-tax insurance products to employees through private insurance providers. Each agency/university insurance committee is responsible for reviewing insurance products and determining whether or not they meet the needs of employees at the local level. The committees are also charged with competitively selecting the best insurance products that reflect the needs and desires of the employees they represent. Insurance products available at the local level may include life, dental, disability, accidental death and dismemberment, prepaid legal expenses, and others. 

The current programs that are offered statewide are:

Supplemental Insurance Description

Central Payroll Deduction Code

NC PREPAID LEGAL SERVICES

475

SEANC-DUES

476

PRE-PAID LEGAL SERVICES INC

477

NC COMBINED CAMPAIGN

480

NC PUB SER WORKERS UNION-UE LOC 150

481

SEANC-INSURANCE

500

NATIONAL COLLEGE SAVINGS PROGRAM

529

CENTRAL UNITED LIFE INS CO

605

AMERITAS LIFE INS CORP

715

More information about these supplemental plans is available from the agency/university benefits representative.

Perquisites

A perquisite is a value given to an employee providing certain conditions are met. The perquisite must be a requirement or condition of employment, for the convenience of the employer, and on the premises of the employer.  Employees that are furnished lodging and having conditions of employment that meet these conditions are eligible for perquisite assignment. For example, employees required to occupy housing on the employer's premises as a condition of employment are eligible for perquisite/perquisite value assignment.  Perquisites are exempt from federal and state income tax.  Perquisites currently processed on the Central Payroll System include the following Code Section 130 deductions:

Perquisite Description

Central Payroll Deduction Code

BOARD NON-TAXABLE (PERQ)

001

DORM NON-TAXABLE (PERQ)

002

RENT NON-TAXABLE (PERQ)

003

UTILITY NON-TAXABLE  (PERQ.)

004

Other Miscellaneous Deductions

Other deductions that are available to permanent employees on a statewide basis include:


Miscellaneous Deduction Description

Central Payroll Deduction Code

TERMINATION DEBT

051

REIMB FROM EMP

052

GROUP TERM LIFE-IMPUTED INCOME

055

MOVING EXPENSES (TAXABLE)

056

DORMITORIES

059

EDUCATION REIMB. (TAXABLE)

062

EMPLOYEE TELEPHONE

063

CLOTHING ALLOWANCE-TAXABLE

067

LOAN PAYMENT - NC 401(K) PLAN

092

LOAN PAYMENT - DEF COMP (457) PLAN

093

DOA PARKING (Deferred)

098

STATE EMP CREDIT UNION

100

Pre-Tax Parking Benefit

Department of Administration parking permit costs are deducted from full time employee pay as a pre-tax deduction. This deduction reduces the amount of employee pay subject to federal, state, and FICA tax withholdings by the actual amount paid for the parking permit.

A complete listing of all deductions available on the Central Payroll System, regardless of agency electives, is available at:

http://www.ncosc.net/sigdocs/sig_docs/payroll/frame_test.html

Voluntary Deduction Authorization

Before a voluntary deduction can be put into effect, the agency Payroll Office must receive a deduction authorization containing the following information:

  • Employee name
  • Social Security number
  • Amount of deduction
  • Effective date
  • Employee's normal pay date
  • Employee's signature
  • Approval by the agency Personnel Office, where required

Credit Union payroll deduction authorization forms may be obtained from any Credit Union branch. Payroll deduction authorizations for parking are obtained from the agency's departmental parking coordinator.

Canceling a Voluntary Deduction

To cancel a voluntary deduction, an employee must submit to the agency's Payroll Office a signed authorization of cancellation letter that includes the employee's Social Security number.

Refunds of Deductions

Refunds can be processed only on the two Cancellation & Rewrite payroll processing cycles.  For voluntary insurance deduction refunds, approval must be obtained from the insurance company if the deduction error exceeds two months.

Refunds of Statutory Deductions

Statutory deductions are refunded when the amounts deducted were over withheld as a result of a payroll keying error.  These amounts can only be refunded if the agency's Payroll Office receives notification of the error prior to December 31 of the calendar year in which the error occurred.

Refunds of Garnishments and Levies

Garnishments and levies are not refundable.  Employees must contact the clerk of court that ordered the garnishment or governmental agency that submitted the levy to request a refund.

Refunds of Voluntary Deductions

Refunds of voluntary deductions are processed when the deduction administrator provides the agency's Payroll Office an authorization for a refund of previously deducted amounts.  Requests for refunds for the following voluntary deductions are not allowed after December 31 of the calendar year in which the deductions occurred:

Deduction Description

Deduction Codes

Group Term Life - Imputed Income

055

Annuity 403(b)

200

NC 401(k) Plan

225

Deferred Compensation (457)

249

Dependent Care Flex Plan

445

Health Care Flex Plan

446

ING Term Life Flex Plan

452

For specific restrictions regarding deduction refunds, refer to the Cancellation/REwrite section, topic "Personal Check Refunds."

Interfaces

The Central Payroll Division receives electronic data from the administrative vendors related to the following deductions:

Deduction Description

Deduction Codes

Frequency of Receipt

Group Term Life - Imputed Income

055

Monthly

Loan Payment - NC 401(k) Plan

092

Monthly

Loan Payment - Def Comp (457) Plan

093

Monthly

State Employees Credit Union

100

Monthly

NC 401(k) Plan

225

Monthly

Deferred Compensation (457) Plan

249

Monthly

Dependent Care Flex Plan

445

January

Health Care Flex Plan

446

January

NC Mutual Dental Flex Plan

448

Monthly

UNUM AD&D Flex Plan

449

Monthly

Superior Vision Flex Plan

450

Monthly

Health Care Plus Flex Plan

451

Monthly

ING Term Life Flex Plan

452

Monthly

Allstate Cancer Flex Plan

454

Monthly

SEANC - Dues

476

Monthly

SEANC - Insurance

500

Monthly

National College Savings Plan

529

Monthly

Disbursement of Deductions

The Central Payroll Division disburses all amounts withheld from employees' pay as follows:

  • Electronic disbursement of deductions
  • Paper check disbursements to specific vendors
  • Paper check disbursements to individual agencies

Electronic Payment of Deductions by Central Payroll

The Central Payroll Division remits electronic payments to the administrative vendors for the following deductions:

Deduction Description

Deduction Codes

Frequency of Receipt

State Employees Credit Union

100

Monthly

NC 401(k) Plan

225

Monthly

Deferred Compensation (457)

249

Monthly

NC Mutual Dental Flex Plan

448

Monthly

SEANC - Dues

476

Monthly

SEANC - Insurance

500

Monthly

Retirement Contributions (T&SE, Judicial, POA & Disability)

N/A

Monthly

Social Security Taxes (FICA)

N/A

After each Payroll Processing Date

State Income Taxes

N/A

After each Payroll Processing Date

Federal Income Taxes

N/A

After each Payroll Processing Date

Paper Check Disbursements by the Central Payroll Division

All amounts deducted from employees' pay that are not electronically disbursed are remitted via paper check by the Central Payroll Section. Direct payments to vendors are made for all deductions except the following:

  • Annuities (deduction code 200)
  • All garnishments and levies(deduction codes 900 through 911)
  • Employee health insurance deductions for the State Health Plan (deduction code 400), Tricare Hospitalization Plan (deduction code 405), and the State PPO Health Plan (deduction code 410)
  • Various other miscellaneous deductions (deduction codes 001 through 075, 094 and 095)

For the deductions listed above, the Central Payroll Section remits a paper check to the individual agency or employee. Each agency is responsible for making payments to the appropriate vendor for these deductions. For NCAS agencies, the receipt of deductions from the Central Payroll Section should be deposited by the individual agencies to the appropriate clearing accounts as follows:

Deduction Description

General Ledger Account Credited

Annuities other than 401(k) and 457

211915 Annuity and Life Income Payable

Garnishments and Levies

211230 Payroll Garnishment Payable

State Health Plan

211930400 Health Benefits Pay #400

Tricare Hospitalization Plan

211930405 Health Benefits Pay #405

State PPO Health Plan

211930410 Health Benefits Pay #410

Miscellaneous (#052, 053, 054 - 098)

2138AA Payable Clearing*

*2138AA is an agency discretionary account. A unique account should be established for each type of deduction deposited.

When the agency issues payment to the appropriate vendors, the payments should be coded to the same clearing accounts to which the deductions were deposited.

Scope

This policy applies to all state entities using the Central Payroll System.

Exceptions

There are no exceptions to this policy.

Glossary of Terms

There are no special terms for this policy.

*Please contact Central Payroll for information regarding applicable federal statutes and rules.

Adopted: July 1, 2005

Version:  2005-0701.01