Withholding Taxes: North Dakota

This item is part of Withholding Taxes.

The below content should be reviewed in conjunction with the in-depth federal coverage of this topic provided above.

Authors: Joel Fremstad and Lynn Block, Fremstad Law

Summary

  • In North Dakota, a resident includes an individual who is domiciled in the state, or has a permanent place of abode in the state, and spends more than seven months of the year in the state. Nonresidents are subject to North Dakota income tax withholding for services performed in North Dakota. North Dakota has reciprocal income tax withholding agreements with Minnesota and Montana. Special income tax withholding exemptions apply to certain employees. See Withholding on Residents, Nonresidents and Expatriates.
  • Federal Form W-4, Employee's Withholding Allowance Certificate, is used to determine employees' North Dakota income tax withholding. Employers must provide federal Form W-2, Wage and Tax Statement, to current and terminated employees by January 31 of each year. See Employee's Withholding Allowance Certificate; Form W-2 Requirements.
  • Withholding on supplemental wage payments, such as bonuses, is calculated differently depending on whether the payments are made at the same time as regular wages or separately. See Supplemental Wage Payments.
  • North Dakota employers are required to keep all business and employee records needed to determine the employer's correct tax liability. Records must be available at all times for inspection on request of the tax commissioner. See Recordkeeping Requirements.

Withholding on Residents, Nonresidents and Expatriates

Residents

In North Dakota, a resident includes an individual who is domiciled in the state, or has a permanent place of abode in the state, and spends more than seven months of the year in the state.

Services Performed by a North Dakota Resident in Another State

North Dakota employers must withhold on wages paid to a resident of North Dakota for services performed outside of North Dakota if the employer's primary place of business is in North Dakota and the wages are subject to federal income tax withholding. If a North Dakota employer withholds taxes for the state in which the services were performed, the employer should not withhold for North Dakota.

+N.D.C.C. § 57-38-59.

Nonresidents

Nonresidents are generally subject to North Dakota income tax withholding for services performed in North Dakota. +N.D.C.C. § 57-38-03.

However, effective January 1, 2013, nonresidents are not subject to North Dakota income tax withholding if the following conditions are met:

  • The nonresident has no other income from sources in North Dakota for the tax year;
  • The nonresident is present in North Dakota to work for no more than 20 days (any part of a day constitutes a day, unless for transit through the state); and
  • The nonresident's state of residence either provides a substantially similar exclusion, does not impose individual income tax or the nonresident's income is exempt under federal law.

+N.D.C.C. § 57-38-59.3.

There are also exceptions for Minnesota and Montana residents covered under the reciprocity agreements between North Dakota and those two states, certain employees who work in the transportation industry, and military spouses. +N.D.C.C. § 57-38-03.

Reciprocal Agreements

North Dakota has reciprocal income tax withholding agreements with Minnesota and Montana. Residents of those states who work in North Dakota are not subject to North Dakota income tax withholding. Similarly, a resident of North Dakota who works in Minnesota or Montana is not subject to withholding on services performed in those states.

To claim the reciprocity exemption, Minnesota and Montana residents working in North Dakota must complete and submit to their North Dakota employer Form NDW-R, Reciprocity Exemption from Withholding for Qualifying Minnesota Residents Working in North Dakota.

+N.D.C.C. § 57-38-59.1; +N.D. Admin. Code § 81-03-05.

Transportation Employers

Transportation industry employers are not required to withhold on wages paid to nonresidents for work performed in North Dakota if all of the employee's services in any one payroll period are performed in more than one state. Nonresident employees of a transportation company must file a Certificate of Transportation Company Employee form to claim this exemption from North Dakota withholding. +N.D.C.C. § 57-38-04; +N.D.C.C. § 57-38-65.

Military Spouses

The qualifying spouse of a US armed forces service member is exempt from withholding in North Dakota. +N.D.C.C. § 57-38-01(10). To claim the exemption, the spouse must provide to his or her employer Form NDW-M, Exemption from Withholding for a Qualifying Spouse of a US Armed Forces Servicemember.

Expatriates

Foreign earned income of North Dakota residents working outside the US is subject to North Dakota income tax withholding. Federal income tax exclusions provided under Internal Revenue Code § 911 are allowed in North Dakota.

Employee's Withholding Allowance Certificate

Federal Form W-4, Employee's Withholding Allowance Certificate, is used to determine employees' North Dakota income tax withholding. Forms W-4 submitted by employees expire on February 15 of the next calendar year, at which time employees must submit new ones. If an employee does not submit a Form W-4, the employer should withhold as if the employee were single with zero withholding allowances. See Form W-4.

Supplemental Wages

If a supplemental wage payment, such as a bonus, is made to an employee at the same time as regular wages, the employer is required to treat the sum of the payments as a single payment and compute withholding on the total, either as a percentage of wages or by using the withholding tables. (Note: The percentage of federal withholding method was eliminated effective January 1, 2014.)

If a supplemental wage payment is made separately from regular wages, or if it is combined with regular wages but separately identified, the employer must determine withholding in the following manner:

If North Dakota income tax was withheld from the regular wages, the amount of North Dakota income tax to withhold from the supplemental wages must be calculated using either one of the following methods:

  • Multiply the supplemental wages by 2.28 percent; or
  • Add the supplemental wages to the regular wages for the most recent payroll period, then calculate a tentative withholding amount on this total using any of the regular allowed methods, then from the tentative amount subtract the amount of North Dakota income tax already withheld from the regular wages; withhold the result from the supplemental wages.

Office of State Commissioner, Booklet 2012 Income Tax Withholding Rates and Instructions.

Form W-2 Requirements

Employers must provide federal Form W-2, Wage and Tax Statement, to current and terminated employees by January 31 of each year. +N.D.C.C. § 57-38-60. See Form W-2.

Recordkeeping Requirements

North Dakota employers are required to keep all business and employee records needed to determine the employer's correct tax liability. Records must be available at all times for inspection on request of the tax commissioner.

There is no required minimum retention period for records. However, employers should keep in mind that the tax commissioner may audit returns and make an assessment of taxes owed for up to three years after the due date of a return or after a return has been filed, whichever is later. The commission has up to six years if there has been a change in taxable income or income tax liability exceeding 25 percent of the amount stated in a return as filed. The commissioner has up to 10 years after the due date of a return if the employer failed to file the return, and an indefinite time period if the commissioner finds evidence of fraud. +N.D.C.C. §§ 57-38-38, 57-38-40; +N.D. Admin. Code § 81-01.1-04-03; +N.D. Admin. Code § 81-01.1-04-10.

Future Developments

There are no developments to report at this time. Continue to check XpertHR regularly for the latest information on this and other topics.

Additional Resources

North Dakota Tax Commission