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State withholding


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I think I know the answer, but thought I'd solicit opinions.

Suppose you have a state where state withholding is NOT mandatory - let's use NY as an example. Can a plan refuse to do state withholding on a taxable distribution, since it isn't required, even if the participant WANTS to have state tax withheld? I know that many platforms will accommodate the request, but I believe it is not required.

Thoughts? Thanks, and Happy New Year!

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I’m not aware of anything in title I of the Employee Retirement Income Security Act of 1974 that requires a retirement plan’s administrator or trustee to provide a distributee the convenience of withholding for a State’s income tax.

However, if a plan’s practice is not to withhold for State income tax unless law that governs the payer compels withholding, the plan’s administrator might consider whether a summary plan description and forms for requesting a distribution should furnish this information.

Beyond the disclosures, notices, account statements, and reports that ERISA, by statute or a rule, requires, a fiduciary has duties to communicate further information a prudent fiduciary should know someone needs to protect his or her interests in the plan.

A plan’s administrator must communicate with no less “care, skill, prudence, and diligence” than a prudent person who is experienced in administering a similar retirement plan would use.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Belgarath, you might check (unless you have already) whether, although withholding is not mandatory, NY requires that the employee be provided a withholding election.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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Good point. Does anyone doing a lot of NY business happen to know the answer to this? (This really comes up in the context of a plan using brokerage accounts - the recordkeeping platforms do their thing anyway so it isn't an issue on those, but the brokerage firms don't do a darned thing, so this becomes an issue.)

 

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