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Guidance for Income Tax Withholding on Certain Periodic Retirement and Annuity Payments

Posted by Admin Posted on May 28 2020

The U.S. Department of the Treasury and the Internal Revenue Service today issued a proposed regulation updating the federal income tax withholding rules for periodic retirement and annuity payments made after December 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 would instead be determined under rules prescribed by the Secretary of the Treasury.

In Notice 2020-03 (PDF), the IRS provided that, for 2020 the default rate of withholding on periodic payments will continue to be based on treating the taxpayer as a married individual claiming three withholding allowances when no withholding certificate is in effect.

Under the proposed regulation for 2021 and future calendar years, the Treasury Department and the IRS will provide the rules and procedures for determining the default rate of withholding on periodic payments when a taxpayer has no withholding certificate in effect in applicable forms, instructions, publications and other guidance.

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