Revised W-4P and new W-4R needed for accurate income tax withholding – UPDATED

UPDATE: The redesigned Form W-4P won’t be available until 2022, IRS announced during its November Payroll Industry Call. Given the delay in implementation, you’ll be able to use either the 2021 or 2022 version of the W-4P next year – a computational bridge will allow the withholding tables to work either way, IRS said.

Form W-4P is slated to be split into two forms for tax year 2022, allowing for more accurate federal income tax withholding, according to IRS.

During its October Payroll Industry Call, IRS announced plans to release the final versions of the overhauled Form W-4P and the brand-new Form W-4R in December 2021.

With only drafts in employers’ hands so far, that’ll make year-end prep tough, acknowledged IRS, adding that it’s working on a resolution. No word yet on details.

IRS gave employers a heads-up on income tax withholding for TY 2022 by releasing drafts of the forms, dated March 12, 2021:

• Form W-4P, Withholding Certificate for Periodic Pension or Annuity Payments, and
• Form W-4R, Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions.

Purpose of the forms

The W-4P will help ensure that payers withhold income tax correctly from periodic pension, annuity, profit-sharing and stock bonus plans as well as from IRA payments. Note: Income tax withholding will apply to the taxable part of the payments. So what’s “periodic,” as indicated in the form’s title? That might be a payment made yearly, quarterly or monthly, for example.

If you think the revamped W-4P looks a lot like the W-4 as redesigned in 2020, you’re right.

In fact, the draft 2022 Form W-4P walks you through almost identical steps to the current Form W-4:

1. Enter Personal Information – Step 1
2. Income From a Job or Multiple Pensions/Annuities (Including a Spouse’s Job or Pension/Annuity) – Step 2
3. Claim Dependent and Other Credits – Step 3
4. Other Adjustments (optional) – Step 4
5. Sign Here – Step 5

Meanwhile, Form W-4R is for “nonperiodic” payments. They’re subject to a default income tax withholding rate of 10% of the taxable amount. The W-4R also covers withholding from eligible rollover distributions, with a default rate of 20%.

An update on Form W-4, too

During the Payroll Industry Call, IRS also gave an update on the 2022 Form W-4, Employee’s Withholding Certificate. That won’t differ much from the current form.

IRS intends to release that form around the same time as the W-4P and W-4R: in December 2021.

Before that time, you can look for an early release of the inflation-adjusted tax rate tables for income tax withholding, IRS said.