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Current Year Tax Map
Publication 505
taxmap/pubs/p505-005.htm#en_us_publink1000194485

Pensions and Annuities(p14)

rule
Income tax usually will be withheld from your pension or annuity distributions unless you choose not to have it withheld. This rule applies to distributions from:
The amount withheld depends on whether you receive payments spread out over more than 1 year (periodic payments), within 1 year (nonperiodic payments), or as an eligible rollover distribution (ERD). Income tax withholding from an ERD is mandatory. ERDs are discussed later under Eligible Rollover Distributions.
taxmap/pubs/p505-005.htm#en_us_publink1000194487

Nontaxable part.(p14)

rule
The part of your pension or annuity that is a return of your investment in your retirement plan (the amount you paid into the plan or its cost to you) is not taxable. Income tax will not be withheld from the part of your pension or annuity that is not taxable. The tax withheld will be figured on, and cannot be more than, the taxable part.
For information about figuring the part of your pension or annuity that is not taxable, see Publication 575, Pension and Annuity Income.
taxmap/pubs/p505-005.htm#en_us_publink1000194488

Periodic Payments(p14)

rule
Withholding from periodic payments of a pension or annuity is figured in the same way as withholding from salaries and wages. To tell the payer of your pension or annuity how much you want withheld, fill out Form W-4P or a similar form provided by the payer. Follow the rules discussed under Salaries and Wages, earlier, to fill out your Form W-4P.
Note.Use Form W-4, not Form W-4P, if you receive any of the following.
taxmap/pubs/p505-005.htm#en_us_publink1000194491

Withholding rules.(p14)

rule
The withholding rules for pensions and annuities differ from those for salaries and wages in the following ways.
taxmap/pubs/p505-005.htm#en_us_publink1000194493

Effective date of withholding certificate.(p14)

rule
If you give your withholding certificate (Form W-4P or a similar form) to the payer on or before the date your payments start, it will be put into effect by the first payment made more than 30 days after you submit the certificate.
If you give the payer your certificate after your payments start, it will be put into effect with the first payment which is at least 30 days after you submit it. However, the payer can elect to put it into effect earlier.
taxmap/pubs/p505-005.htm#en_us_publink1000194494

Nonperiodic Payments(p14)

rule
Tax will be withheld at a flat 10% rate on any nonperiodic payments you receive, unless you tell the payer not to withhold.
Use Form W-4P, line 3, to specify that an additional dollar amount be withheld. You also can use Form W-4P, line 1, to choose not to have tax withheld. If you want to revoke a choice not to have tax withheld, see Choosing Not To Have Income Tax Withheld, later.
EIC
You may need to use Form W-4P to ask for additional withholding. If you do not have enough tax withheld, you may need to pay estimated tax, as explained in chapter 2.
taxmap/pubs/p505-005.htm#en_us_publink1000194498

Eligible Rollover Distributions(p14)

rule
A distribution you receive that is eligible to be rolled over tax free into a qualified retirement or annuity plan is called an eligible rollover distribution (ERD). This is the taxable part of any distribution from a qualified pension plan or tax-sheltered annuity that is not any of the following.
  1. A required minimum distribution.
  2. One of a series of substantially equal periodic pension or annuity payments made over:
    1. Your life (or your life expectancy) or the joint lives of you and your beneficiary (or your life expectancies), or
    2. A specified period of 10 or more years.
  3. A hardship distribution.
The payer of a distribution must withhold at a flat 20% rate on any part of an ERD that is distributed rather than rolled over directly to another qualified plan. Withholding on these distributions is mandatory. However, no withholding is required on any part rolled over directly to another plan.
taxmap/pubs/p505-005.htm#en_us_publink1000194499

Choosing Not To Have
Income Tax Withheld(p15)

rule
For payments other than ERDs, you can choose not to have income tax withheld. The payer will tell you how to make this choice. If you use Form W-4P, check the box on line 1 to choose not to have withholding. This choice will remain in effect until you decide you want withholding and inform the payer. See Revoking a choice not to have tax withheld.
The payer must withhold if either of the following applies:
If you do not have any income tax withheld from your pension or annuity, or if you do not have enough withheld, you may have to pay estimated tax. See chapter 2.
If you do not pay enough tax, either through estimated tax or withholding, or a combination of both, you may have to pay a penalty. See chapter 4.
taxmap/pubs/p505-005.htm#en_us_publink1000194503

Payments delivered outside the United States.(p15)

rule
You generally must have tax withheld from pension or annuity benefits delivered outside the United States. However, if you are a U.S. citizen or resident alien, you can choose not to have tax withheld if you give the payer of the benefits a home address in the United States or in a U.S. possession. The payer must withhold tax if you provide a U.S. address for a nominee, trustee, or agent to whom the benefits are to be delivered, but do not provide your own home address in the United States or in a U.S. possession.
taxmap/pubs/p505-005.htm#en_us_publink1000194504

Notice required of payer.(p15)

rule
The payer of your pension or annuity must send you a notice telling you about your right to choose not to have tax withheld.
Generally, the payer will not send a notice to you if it is reasonable to believe that the entire amount you will be paid is not taxable.
taxmap/pubs/p505-005.htm#en_us_publink1000194505

Revoking a choice not to have tax withheld.(p15)

rule
The payer of your pension or annuity will tell you how to revoke your choice not to have income tax withheld from periodic or nonperiodic payments. If you use Form W-4P to revoke the choice, enter "Revoked" by the checkbox on line 1 of the form. This will instruct the payer to withhold as if you were married and claiming three allowances. However, you can tell the payer exactly how much to withhold by completing line 2 of the form for periodic payments or line 3 for nonperiodic payments.