Page 26 - Employers Supplemental Guide

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Form W-4P, line 2, and can designate an additional Eligible Rollover Distribution—20%
amount to be withheld on line 3. If the recipient doesn't Withholding
want any federal income tax withheld from his or her peri-
odic payments, he or she can check the box on Form Distributions from eligible retirement plans (other than
W-4P, line 1, and submit the form to you. If the recipient IRAs), such as qualified plans, 401(k) plans, section
doesn't submit Form W-4P, you must withhold on periodic 457(b) plans maintained by a governmental employer,
payments as if the recipient were married claiming three section 403(a) annuity plans or section 403(b) tax-shel-
withholding allowances. Generally, this means that tax will tered annuities that are eligible to be rolled over tax free to
be withheld if the pension or annuity is at least $2,095 a an IRA or another eligible retirement plan, are subject to a
month. flat 20% withholding rate. The 20% withholding rate is re-
quired and a recipient can't choose to have less federal in-
If you receive a Form W-4P that doesn't contain the re- come tax withheld from eligible rollover distributions. How-
cipient's correct taxpayer identification number (TIN), you ever, you shouldn't withhold federal income tax if the
must withhold as if the recipient were single claiming zero entire distribution is transferred in a direct rollover to a tra-
withholding allowances even if the recipient attempts to ditional IRA or another eligible retirement plan.
choose not to have income tax withheld.
Exceptions. Distributions that are (a) required minimum
See section 5 of Pub. 15-T for the appropriate compu- distributions, (b) one of a specified series of equal pay-
tational method to figure federal income tax withholding ments, or (c) qualifying “hardship” distributions aren't “eli-
on periodic payments if the recipient doesn’t submit Form gible rollover distributions” and aren't subject to the man-
W-4P or you receive a Form W-4P that doesn’t contain the datory 20% federal income tax withholding. See Pub. 505
recipient’s correct TIN. for details. Also, see Nonperiodic Payments—10% With-

There are some kinds of periodic payments for which holding above.
the recipient can't use Form W-4P because they are al-
ready defined as wages subject to federal income tax Payments to Foreign Persons and
withholding. These include retirement pay for service in Payments Outside the United States
the U.S. Armed Forces and payments from certain non-
qualified deferred compensation plans and deferred com- Unless the recipient is a nonresident alien, withholding in
pensation plans of exempt organizations described in sec- the manner described earlier is required on any periodic
tion 457. or nonperiodic payments that are delivered outside the
United States and its possessions. A recipient can't
The recipient's Form W-4P stays in effect until he or choose not to have federal income tax withheld.
she changes or revokes it. You must notify recipients each
year of their right to choose not to have federal income tax In the absence of a treaty exemption, nonresident ali-
withheld or to change their previous choice. ens, nonresident alien beneficiaries, and foreign estates
generally are subject to a 30% withholding tax under sec-
Nonperiodic Payments—10% Withholding tion 1441 on the taxable portion of a periodic or nonperi-
odic pension or annuity payment that is from U.S. sour-
You must withhold at a flat 10% rate from nonperiodic ces. However, many tax treaties provide that private
payments (but see Eligible Rollover Distribution—20% pensions and annuities are exempt from withholding and
Withholding next) unless the recipient chooses not to tax. Also, payments from certain pension plans are ex-
have income tax withheld (if permitted). Distributions from empt from withholding even if no tax treaty applies. See
an IRA that are payable on demand are treated as non- Pub. 515 and Pub. 519. A foreign person should submit
periodic payments. A recipient can choose not to have in- Form W-8BEN, Certificate of Foreign Status of Beneficial
come tax withheld from a nonperiodic payment by submit- Owner for United States Tax Withholding and Reporting
ting Form W-4P (containing his or her correct TIN) and (Individuals), to you before receiving any payments. The
checking the box on line 1. Generally, the choice not to Form W-8BEN must contain the foreign person's TIN to
have federal income tax withheld will apply to any later support a withholding exemption. A TIN for this purpose
payment from the same plan. A recipient can't use line 2 means a U.S. TIN (SSN or individual taxpayer identifica-
for nonperiodic payments, but he or she may use line 3 to tion number (ITIN)). However, for a claim based on a tax
specify an additional amount that he or she wants with- treaty, a foreign TIN may be substituted for a U.S. TIN.
held. Special rules may apply to nonresident aliens who re-

If a recipient submits a Form W-4P that doesn't contain linquished U.S. citizenship or ceased to be long-term resi-
his or her correct TIN, you can't honor his or her request dents of the United States after June 16, 2008. For more
not to have income tax withheld and you must withhold information, see section 5 of Notice 2009-85, 2009-45
10% of the payment for federal income tax. I.R.B. 598, available at IRS.gov/irb/
2009-45_IRB#NOT-2009-85. Also see Form W-8CE, No-
tice of Expatriation and Waiver of Treaty Benefits.

Page 24 Publication 15-A (2020)