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Mandatory Withholding Requirement Floor


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Does anyone know if there is a floor for the Mandatory Withholding requirement? I know that you don't have to issue a 1099R if the distribution is less than $10. But is there mandatory withholding on the $10? if not, does anyone know what that floor would be?

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Assuming you are talking about an "eligible rollover distribution" if ALL distributions for a calendar year total less than $200, generally no 20% withholding applies.

You should look at the regs under 31.3405(c), as there are certain "unusual" circumstances.

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Q-14:     Must a payor or plan administrator withhold tax from an eligible rollover distribution for which a direct rollover election was not made if the amount of the distribution is less than $200?

A-14:     No.  However, all eligible rollover distributions received within one taxable year of the distributee under the same plan must be aggregated for purposes of determining whether the $200 floor is reached. If the plan administrator or payor does not know at the time of the first distribution (that is less than $200) whether there will be additional eligible rollover distributions during the year for which aggregation is required, the plan administrator need not withhold from the first distribution.  If distributions are made within one taxable year under more than one plan of an employer, the plan administrator or payor may, but need not, aggregate distributions for purposes of determining whether the $200 floor is reached.  However, once the $200 threshold has been reached, the sum of all payments during the year must be used to determine the applicable amount to be withheld from subsequent payments during the year.

https://www.ecfr.gov/current/title-26/chapter-I/subchapter-C/part-31/subpart-E/section-31.3405(c)-1

 

BenefitsLink neighbors, in your experience, do some or many payers simplify operations by withholding normally even if a distribution is less than $200?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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1 hour ago, Peter Gulia said:

BenefitsLink neighbors, in your experience, do some or many payers simplify operations by withholding normally even if a distribution is less than $200?

To my knowledge they don't.  And, to be honest, I don't trust that they apply the accumulated amount rule properly either.  I've never been in a position to check.

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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