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Mandatory State Tax Withholding on distributions

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3 replies to this topic

#1 christy


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Posted 21 December 1998 - 05:20 PM

We serve as a corporate trustee for retirement plans. This includes the issuance of distributions to paricipants and corresponding federal tax withholding. Some recordkeepers have informed us certain states have mandatory state tax withholding on retirement plan distributions and we (the trust company) must submit these taxes on the participant's behalf. Is this true? If so, which states require state tax withholding?

#2 Bill


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Posted 21 December 1998 - 06:37 PM

I'm working on the same issue, filing for tax id numbers in all of the states - as far as I'm able to confirm, mandatory withholding states are: California, Kansas, Maine, Massachusetts, Oregon and Vermont. Those that I have conflicting information on but haven't had a chance to research are: Delaware, Georgia, Iowa, Louisiana, Oklahoma, Pennsylvania, and Virginia. All other states are either no state income tax or pension distributions only require the option of voluntary withholding.

#3 Beavis


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Posted 22 December 1998 - 11:22 AM

It's been a couple years since I've thought about this, so maybe this information is outdated...

...but arent't there a couple states that require quarterly tax reporting? I was thinking that New York and California required this. I remember that the information I had from California mentioned that among the possible penalties for failure to comply with their quarterly reporting requirements was jail.

While that's pretty laughable, it makes me wonder about compliance with states' withholding requirements. Has anyone ever suffered any consequences from an outside state for not complying with their withholding requirements? Seems to me that California is going to have a tough time penalizing a tax reporter in Maine.

On the other side, would there be consequences for the individual receiving the distribution?

#4 Bill


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Posted 22 December 1998 - 01:02 PM

Actually, most states seem to require at least a quarterly filing from the payor and some want it submitted monthly. The option around that seems to be EFT at the time of a distribution, then you only have to do an annual reconciliation filing. They assess penalties and interest for late or no filings and usually will threaten to assess the employer if the payor doesn't remit. No one wants to upset a client that way. I guess I'd better start packing a toothbrush everyday in case we ever slip up in California, though!