Regs on retirement-payment withholding updated – Accounting Today

Posted: September 30, 2020 at 1:51 am


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The Internal Revenue Service has issued final regulations that update the federal income tax withholding rules for certain periodic retirement and annuity payments made after Dec. 31.

In July, the IRS released a draft of a redesigned 2021 Form W-4P and instructions intended to align with the redesigned W-4. The draft W-4P also proposed a new default rate of withholding on periodic payments that begin after Dec. 31, 2020. Based on comments received on the draft, the IRS will postpone issuance of the redesigned form. Instead, the 2021 Form W-4P will be similar to the 2020 Form W-4P.

The IRS also intends to provide in the instructions to the 2021 Form W-4P and related publications that the default rate of withholding on periodic payments will continue to be determined by treating the taxpayer as a married individual claiming three withholding allowances.

Tax reform provided that the rate of withholding on periodic payments when no withholding certificate is in effect (the default rate of withholding) would be determined under rules prescribed by the Secretary of the Treasury. Prior to the Tax Cuts and Jobs Act, if no withholding certificate was in effect for a taxpayers periodic payments, the withholding from the payments was determined by treating the taxpayer as a married individual claiming three exemptions.

The final regulation issued provides guidance for 2021 and future calendar years and specifies that the Treasury and the IRS will provide the rules and procedures for determining the default rate of withholding on periodic payments.

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Regs on retirement-payment withholding updated - Accounting Today

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September 30th, 2020 at 1:51 am

Posted in Retirement