Update: The New IRS Draft Forms for Tax Withholding from Benefit Payments: What You Need to Know
Today the IRS issued a fourth early release draft 2022 Form W-4P, in which the IRS confirmed that use of the 2022 Form W-4P will not be required in 2022, allowing the 2021 version of the form to continue to be used through December 31, 2022. The IRS encourages payors to update their system programming and to use the 2022 forms as soon as programming is in place.
As an update to our E-Alert dated November 1, 2021, it is being reported that an IRS representative announced on the November 4 monthly payroll-industry teleconference that the IRS will be making use of the 2022 Form W-4P optional in 2022, allowing the 2021 version of the form to continue to be used through December 31, 2022, with withholding methods to support both forms. It is also being reported that the IRS will be issuing an early release of the 2022 Form W-4P next week, which the representative indicated would include changes to the worksheet. We will continue to monitor IRS activity in this area and update you with further developments. We will continue to monitor IRS activity in this area and update you with further developments.
On March 12, 2021, the IRS released the latest versions of the 2022 draft withholding forms for pension, IRA, and annuity payments (we provided information regarding this in our e-alert dated March 12, 2021). While pension withholding elections have historically been made on Form W-4P, the IRS intends to split that form into two forms for 2022⸺
Form W-4P and
W-4R. It is important to note that new forms submitted on or after January 1, 2022,
must utilize the new Form W-4P and W-4R and the new withholding method.
Since the release of the 2022 forms in March 2021, there has not yet been any additional guidance regarding whether the IRS is moving forward with implementing the new Forms W-4P and W-4R, effective January 1, 2022. With that said, in the March 2021 draft of the Form W-4P, the IRS stated, “
[t]hese computational steps should not change, and this draft form may be relied upon for purposes of starting systems programming.”
W-4P
Form W-4P will be used only for the withholding of federal income tax from
periodic payments from retirement plans and IRAs. Periodic payments are made in installments at regular intervals over a period of more than one year. The new default withholding if someone does not provide a Form W-4P is single with no adjustments (changing the default from married with three dependents). Members already receiving payments do not need to submit a new Form W-4P if they do not want to make withholding changes, and members who are currently on default withholding of married with three dependents will not need to be changed to the new default withholding. However, there is an optional "computational bridge" calculation which would allow a plan to utilize the same steps for a pre-2022 W-4P as a 2022 Form W-4P for withholding calculation purposes. If a plan does not utilize the "computational bridge," then worksheet steps 1j-1l provide a calculation to utilize the new tables for pre-2022 Forms W-4P.
W-4R
Beginning January 1, 2022, a new Form W-4R will be used to make federal income tax withholding elections from eligible rollover distributions and
nonperiodic payments (
i.e. 20% mandatory withholding and 10% voluntary withholding).
As our clients review and update their withholding forms, procedures, and communications for these anticipated changes, for more information, please contact
Audra Ferguson-Allen,
Rob Gauss,
Lisa Harrison,
Lindsay Knowles or the
Ice Miller Employee Benefits attorney with whom you work. In the meantime, we will continue to provide updates as the IRS releases more information on the implementation of these forms.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.