Get access to the exclusive HR Resources you need to succeed in 2018.
Sign up for free email newsletters and get more SHRM content delivered to your inbox.
Is your employee handbook keeping up with the changing world of work? With SHRM's Employee Handbook Builder get peace of mind that your handbook is up-to-date.
Build competencies, establish credibility and advance your career—while earning PDCs—at SHRM Seminars in 14 cities across the U.S. this fall.
Gain the skills you need to rise to the next level in your career. Jon us at SHRM's Leadership Development Forum, October 2-3 in Boston.
Plan sponsors may adopt additional withholding tables to avoid potential under-withholding problems for pensioners.
Members may download one copy of our sample forms and templates for your personal use within your organization. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item.
In May 2009, the Internal Revenue Service (IRS) released additional guidance on withholding amounts that plan sponsors may adopt to help pensioners avoid potential under-withholding problems. The additional withholding amount tables were announced in
IRS Notice 1036-P.
In February 2009, the IRS released new withholding tables that apply to pension plan payments as well as to wage payments by employers. Plan sponsors and employers were required to implement the new withholding tables by April 1, 2009. The new tables reflect the “Making Work Pay Tax Credit,” an earned income tax credit that was part of the economic stimulus bill, the American Recovery and Reinvestment Act.
The withholding tables apply to all Form W-2 income and pension plan payments except for certain lump-sum retirement payments that are subject to flat income tax withholding. Nevertheless, pension plan payments are not considered “earned income” and, therefore, are not eligible for the Making Work Pay Tax Credit. As a result, the February 2009 withholding tables might prompt pensioners to under-withhold income tax.
Under the optional procedure announced in IRS Notice 1036-P in May 2009, additional amounts may be withheld from the pension payment to account for the fact that such payment is not treated as earned income and not eligible for the Making Work Pay Tax Credit. If the additional withholding tables are used, the IRS encourages plan sponsors to contact payees who changed their Form W-4P withholding elections after the February 2009 tables were implemented to ensure that the payee’s withholding intent is effected properly. Plan sponsors are not required to use the additional withholding amount tables and may, instead, continue to use the February 2009 tables.
Steps for Plan Sponsors
Many plan sponsors will wish to use the new withholding tables; some have already provided their participants with information regarding the February 2009 change in the withholding tables. If the plan sponsor desires to implement the optional procedure to apply additional withholding, a supplemental communication might be appropriate. Plan sponsors should be aware that the IRS will soon launch an outreach effort to educate pensioners about the withholding tables and the Making Work Pay Tax Credit. Plan sponsors should be prepared for inquiries from participants.
Jonathan J. Boyles
is a partner in the law firm of
McDermott Will & Emery LLP and a member of the Employee Benefits Department. He is based in the firm's New York office. Ira B. Mirsky is an attorney based in the firm’s Washington, D.C. office, and focuses on tax controversy matters related to employee compensation and benefits.
© 2009 McDermott will & Emery LLP. All Rights Reserved.
This article should not be construed as legal advice.
SHRM Online Benefits Discipline
Sign up for SHRM’s free
Compensation & Benefits e-newsletter
You have successfully saved this page as a bookmark.
Please confirm that you want to proceed with deleting bookmark.
You have successfully removed bookmark.
Please log in as a SHRM member before saving bookmarks.
Please sign in as a SHRM member before saving bookmarks.
Please purchase a SHRM membership before saving bookmarks.
An error has occurred
Recommended for you
SHRM Member Discounts Program
SHRM’s HR Vendor Directory contains over 10,000 companies