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Default Withholding Rate for Periodic Retirement and Annuity Payments Gets Final Regulations

Final regulations for the default rate of individual income withholding for certain periodic retirement and annuity payments that are made in 2021 are now available. The Internal Revenue Service announced the document’s publication this week, adding to the growing list of recently published final regulations related to the Tax Cuts and Jobs Act (TCJA). (Read about final regulations for the 100 percent bonus depreciation and estate and non-grantor trust deduction on Taxing Subjects.)

The TCJA made sweeping changes to the tax code, modifying income tax brackets, corporate and passthrough tax rates, itemized deductions, and much more. The final regulations published this week shed light on how the IRS intends to handle the withholding rate for periodic payments that do not have a withholding certificate.

The IRS says that the previous rule treated affected taxpayers as if they were married and claiming three withholding exemptions. Now, the rule is solely defined by the Treasury Secretary, who made no changes to the rate for calendar years 2018, 2019, and 2020 (TD-9920, 4). While the IRS says it plans to keep the default rate the same in 2021, taxpayers and tax professionals will have to look for the current rate “in applicable forms, instructions, publications, and other guidance” after December 31, 2020.   

In the final regulations, the IRS explains that moving “the communication and mechanical details of the default rate of withholding on periodic payments … to applicable forms, instructions, publications, and other guidance prescribed by the Commissioner” will “[enable] the Treasury Department and the IRS to make updates more quickly” (6).

Source: IR-2020-223

Ryan Norton

Whether designing superheroes, penciling caricatures, or just doodling, I always knew I was going to earn some sort of art degree while in college. That was my goal before I decided to trade Edgar Degas for Edgar Allan Poe during a Freshman English class. The BA in English soon morphed into a double-major in English and Philosophy, eventually becoming an MA in English. It only makes sense that I learned of a writing opportunity for a local marketing firm while teaching a first-year college English course. Before I knew it, I was writing and editing tax-related articles for Taxing Subjects, and this has been my home since 2014.

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