IRS Issues Final Rule on Default Withholding for Periodic Payments

The U.S. Department of the Treasury and the IRS have issued final regulations updating the federal income tax withholding rules for certain periodic retirement and annuity payments made after December 31.  

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 (i.e., the default rate of withholding) would instead be determined under rules prescribed by the Secretary of the Treasury.

However, the final rules say that for 2021, the rate for withholding on periodic distributions when no election is made will remain unchanged.

The final regulation specifies that in future years, the Treasury Department and the IRS will provide the rules and procedures for determining the default rate of withholding on periodic payments in applicable forms, instructions, publications and other guidance.