IRS provides final regulations on income tax withholding on certain periodic retirement and annuity

IRS provides final regulations on income tax withholding on certain periodic retirement and annuity payments The U.S. Department of the Treasury and the Internal Revenue Service today issued final regulations PDF updating the federal income tax withholding rules for certain periodic retirement and annuity payments made after Dec. 31, 2020. Prior to the Tax Cuts and Jobs Act (TCJA), if no withholding certificate was in effect for a taxpayer's periodic payments, the amount to be withheld from the payments was determined by treating the taxpayer as a married individual claiming three withholding exemptions. The TCJA amended this rule to provide that the rate of withholding on periodic payments when no withholding certificate is in effect (the default rate of withholding) would instead be determined under rules prescribed by the Secretary of the Treasury. The final regulation issued today provides guidance for 2021 and future calendar years. This guidance specifies that the Treasury Department and the IRS will provide the rules and procedures for determining the default rate of withholding on periodic payments in applicable forms, instructions, publications and other guidance. In July 2020, the IRS released a draft of a redesigned 2021 Form W-4P and instructions intended to align with the redesigned Form W-4, Employee's Withholding Certificate. The draft 2021 Form 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 Form W-4P, regarding the time required by payors to implement the new form and a new default rate of withholding, 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. The Treasury and IRS will continue working closely with the tax community on the redesign of Form W‑4P, with the intention of making the withholding system more accurate and transparent for taxpayers. For more information about this and other TCJA provisions, visit IRS.gov/taxreform....(read more)

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