2 revamped withholding forms soon mandatory: What IRS requires

You’ve had a choice about whether to use the redesigned Form W-4P and new Form W-4R during 2022, but the withholding forms won’t be optional much longer.

The draft version of Publication 15-T, Federal Income Tax Withholding Methods, states that the 2023 W-4P and W-4R should be in use on Jan. 1, 2023. Update: The final version of the publication, posted Dec. 15, 2022, sets the same deadline.

Prior to 2022, the information found on the two forms was contained on Form W-4P, Withholding Certificate for Pension or Annuity Payments.

IRS split that form, creating:

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

Using the withholding forms

Form W-4P is for withholding the correct amount of federal income tax from these periodic payments: pensions, annuities, profit-sharing plans, stock bonus plans or individual retirement arrangements (IRAs). Note: “Periodic” could mean on an annual, quarterly or monthly basis, for example.

IRS released a draft 2023 version of Form W-4P on Dec. 2, 2022. Update: The final version was posted on Dec. 19, 2022.

What about Form W-4R? That’s for withholding the correct amount of federal income tax from nonperiodic payments or eligible rollover distributions from an employer retirement plan, annuity or IRA.

Line 2 of the form allows individuals to designate a withholding rate. Otherwise, the default withholding rates are as follows:

• 10% for nonperiodic payments, and
• 20% for eligible rollover distributions.

IRS released a draft 2023 version of the W-4R on Sept. 16, 2022. Update: The final version was posted on Dec. 15, 2022.

So, now the pressure’s on to get the forms into use.