November 16, 2021

IRS Revises Deadline to use Form W-4R

Earlier this year, the IRS announced that IRS Form W-4P, Withholding Certificate for Pension or Annuity Payments, will be split into two forms: IRS Form W-4P, Withholding Certificate for Periodic Pension or Annuity Payments, and IRS Form W-4R, Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions. Previously, the IRS stated that payors were to use the new forms starting January 1, 2022. However, the most recent drafts of the 2022 Form W-4P and the 2022 Form W-4R state that the IRS has postponed the requirement for payors to use the redesignated forms to January 1, 2023. This postponement results from comments received on the previous drafts regarding the time payors need to implement the new forms with their banking systems.

The IRS encourages payors (IRA sponsors) to implement the new forms as soon as possible in their systems and start using them in 2022 if feasible. Instructions for both new forms state that the computational steps in the most recent drafts should not change, and the draft forms may be relied upon for purposes of systems programming. IRA sponsors may continue using the 2021 Form W-4P in 2022 until their systems are updated with the new 2022 Form W-4P and 2022 Form W-4R. The 2021 Form W-4P will no longer be available for use after December 31, 2022.

Currently, IRS Form W-4P is used by IRA sponsors to provide the IRS required information about federal income tax withholding for IRA distributions. Typically, Form W4-P is included on the back of IRA distribution forms. Going forward, Form W-4P will only be used for federal income tax withholding for periodic payments from IRAs. The only IRA distributions that are considered periodic distributions are annuitized distributions from an IRA annuity. The new Form W-4R will be used for nonperiodic IRA distributions (usually subject to a flat withholding rate of 10% unless another rate is elected or withholding is waived by the IRA holder).

PMC will be updating all IRA distribution forms at the appropriate time.