Withholding From Pensions and Annuities
Generally, federal income tax withholding applies to the taxable part of payments made from individual retirement arrangements (IRAs). The method and rate of withholding depend on (a) the kind of payment you receive; (b) whether the payments are delivered outside the United States or its commonwealths and possessions; and (c) whether the recipient is a nonresident alien individual, a nonresident alien beneficiary, or a foreign estate. Qualified distributions from a Roth IRA are nontaxable and therefore, not subject to withholding. Because your tax situation may change from year to year, you may want to refigure your withholding each year. You can change the amount to be withheld by filing a new substitute W-4P or a Form W-4P.
Choosing not to have income tax withheld. You (or in the event of death, your beneficiary or estate) can choose not to have federal income tax withheld from your payments by using this substitute Form W-4P. For an estate, the election to have no income tax withheld may be made by the executor or personal representative of the decedent. Enter the estate's employer identification number (EIN) in the area reserved for your social security number. You may not make this choice for eligible rollover distributions.
Caution. There are penalties for not paying enough federal income tax during the year, either through withholding or estimated tax payments. See Pub. 505. It explains your estimated tax requirements and describes penalties in detail. You may be able to avoid quarterly estimated tax payments by having enough tax withheld from your pension or annuity using the substitute Form W-4P or the Form W-4P.
Nonperiodic payments—10% withholding. Your payer must withhold at a flat 10% rate from nonperiodic payments, unless you choose not to have federal income tax withheld. Distributions from an IRA that are payable on demand are treated as nonperiodic payments. This special rule applies even if you are receiving periodic distributions. You can choose not to have federal income tax withheld from a nonperiodic payment by completing the substitute Form W-4P or Form W-4P. Your Form W-4P stays in effect until you change or revoke it. This substitute form cannot be used if payments from your IRA are not payable upon demand.
Changing Your "No Withholding" Choice
If you previously chose not to have federal income tax withheld and you now want withholding, complete another substitute Form W-4P or Form W-4P and submit it to your payer.
Payments to Foreign Persons and Payments Outside the United States
Unless you are a nonresident alien, withholding (in the manner described above) is required on any periodic or nonperiodic payments that are delivered to you outside the United States or its possessions. You cannot choose not to have federal income tax withheld. In the absence of a tax treaty exemption, nonresident aliens, nonresident alien beneficiaries, and foreign estates generally are subject to a 30% federal withholding tax under section 1441 on the taxable portion of a periodic or nonperiodic pension or annuity payment that is from U.S. sources. However, most tax treaties provide that private pensions and annuities are exempt from withholding and tax. See Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, and Pub. 519, U.S. Tax Guide for Aliens, for details. A foreign person should submit Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, to the payer before receiving any payments. The Form W-8BEN must contain the foreign person's taxpayer identification number (TIN).
Statement of Federal Income Tax Withheld From Your Pension or Annuity
By January 31 of next year, your payer will furnish a statement to you on Form 1099-R, distributions from IRAs, showing the total amount of your payments and the total federal income tax withheld during the year. If you are a foreign person who has provided your payer with Form W-8BEN, your payer instead will furnish a statement to you on Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, by March 15 of next year.
Privacy Act and Paperwork Reduction Act Notice
We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to provide this information only if you want to (a) request federal income tax withholding from periodic pension or annuity payments based on your withholding allowances and marital status, (b) request additional federal income tax withholding from your pension or annuity, (c) choose not to have federal income tax withheld, when permitted, or (d) change or revoke a previous Form W-4P, To do any of the aforementioned, you are required by sections 3405(e) and 6109 and their regulations to provide the information requested on this form. Failure to provide this information may result in inaccurate withholding on your payment(s). Providing false or fraudulent information may subject you to penalties. Routine uses of this information include giving it to the Department of Justice for civil and criminal litigation, and to cities, states, the District of Columbia, and U.S. commonwealths and possessions for use in administering their tax laws. We may also disclose this information to other countries under a tax treaty, to federal and state
agencies to enforce federal nontax criminal laws, or to federal law enforcement and intelligence agencies to combat terrorism.