The IRS has released a draft version of Form W-4P, Withholding Certificate for Pension or Annuity Payments. This new form is being put into place to ensure that taxpayers are receiving the correct amount of tax withheld from their paycheck. It is also being done to ensure that employers are also getting correct tax withholding. This form is not mandatory. However, it is being used as a tool to keep track of the correct amount of taxes being withheld from their paycheck.
Employers who have employees who claim benefits from a qualified plan or IRA are usually required to withhold certain taxes from their employee’s paychecks. This form, Form W-4P, is designed to help employers fill out their Form W-4 to accurately withhold the correct amount of taxes from their employee’s paychecks. The instructions for Form W-4P are posted on the IRS website, and it is important for employers to review the information in the IRS’ draft form to ensure that their employees’ wages are accurately withheld.
What is Form W-4P?
The Form W-4P is used by U.S. citizens, resident aliens, and their estates who are recipients of pensions, annuities (including commercial annuities), and certain other deferred compensation. Pension, annuity, and other deferred compensation are called income in all federal tax systems and are subject to tax under current law.
The W‐4P form is a document that you fill out when you want to pay alimony or support payments. It is filled out at the same time that you are filling out your W‐4, a form that you fill out when you have a tax liability. Both forms are separate from your tax return forms and are returnable so that you can amend them through the year they are filed.
Form W-4P is a tax form that individuals may use to complete and submit a U.S. federal income tax return. It is used to determine one of the following amounts:
- the employee’s income tax withholding (Tax Withholding) for the year, or
- the amount of income tax to be withheld.
The 2022 Form
The simplest way for employers to classify the amount of tax withheld from employees’ paychecks is through the use of Form W-4. The W-4 has two parts: a Form W-4P, which is designed for periodic pensions and annuities, and a Form W-4R, which is designed for withholding on nonperiodic payments and eligible rollover distributions. In order to make the most efficient use of tax withholdings by the employer, the two forms are now combined into one form that can be completed online 7b of Form W-4.
Final Words
The IRS is committed to making the W-4P easier to use and understand, as well as reducing the need for payers to contact employees about their withholding status. Beginning Jan. 1, 2023, employers will be able to use the Form W-4P to collect withholding and filing status information from employees. Employees will use the same form in their workplaces, but it will be on their pay stubs instead of a new form.
Attend the Compliance Prime webinar to know more about Form W-4P.
