New IRS tax forms for retirement plan payment withholding, effective Jan. 1, 2023

As we near the end of 2022, plan sponsors should ensure that their retirement plan systems and vendors are on track to implement the new federal tax withholding election forms no later than January 1, 2023.

Retirement plan sponsors need to utilize updated Form W-4P (for periodic pension and annuity payments) and new Form W-4R (for nonperiodic payments and eligible rollover distributions) for income tax withholding elections beginning January 1, 2023.

As background, in 2017, changes made by the Tax Cuts and Jobs Act (TCJA) required the Internal Revenue Service (IRS) to revise the withholding tables and develop new forms to use to withhold taxes from periodic payments. These forms are used by qualified and non-qualified retirement plans for participants to request withholding on benefit payments that commence in 2023 or later. In 2021, the IRS revised the Form W-4P into the two forms noted above: revised Form W-4P, which is now used only to request withholding on periodic pension and annuity payments, and new Form W-4R, which is used to request additional withholding on nonperiodic payments and eligible rollover distributions. The US Department of the Treasury and the IRS received numerous questions on the new forms, which caused the IRS to delay the implementation until January 1, 2023.