Jump to content

10% Withholding on Excess Contributions?


Guest KD40

Recommended Posts

When we issue ADP refund checks after March 15th of a given year, we withhold 10% taxes from the individuals check when the amount is greater than $200. I have been told that this is an IRS mandatory withholding for money refunded where it is taxable in the current year, but can someone point me in the direction of the IRS language stating this fact?

Thanks.

Link to comment
Share on other sites

I don't think this is true at least from a qualified plan standpoint. The mandatory withholding only applies to "eligible rollover distributions" which excess contributions are not. I think some investment firms tend to impose their own rules on these types of distributions, but to my knowledge there is no 10% mandatory withholding after March 15th. I wonder if someone was confusing the Employer excise tax on the contributions as they weren't timely withdrawn...????

Link to comment
Share on other sites

Also, note that if a distribution (such as this one) is not an eligible rollover distribution and is > $200, then the payor must notify the recipient of his/her right to elect not to have income tax withheld. One isn't permitted to just process these distributions with 10% withholding without giving participants the chance to elect. See Treas. Reg. 35.3405-1T, Part D.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...