State Withholding

[Guest ADMINREX]

Hello,

If I am not mistaken, there are several states that require tax withholding on pension/retirement plan distributions whenever there is federal withholding. I believe Virginia and Colorado are two such states; however, I think that there are maybe up to ten more.

Does anyone have an idea which are the other states?

Thank you,

ADMINREX

[Guest b2kates]

Hello,

If I am not mistaken, there are several states that require tax withholding on pension/retirement plan distributions whenever there is federal withholding. I believe Virginia and Colorado are two such states; however, I think that there are maybe up to ten more.

Does anyone have an idea which are the other states?

Thank you,

ADMINREX

Drop me note with you email and I will send you my spreadsheet of state withholding rules

[Guest TAG]

Don't forget Arkansas and Nebraska went mandatory on Jan 1, 06 and Maryland on July 1, 05.

TAG

[Jean]

Do you have a link to the AR ruling? I have NE.

[david rigby]

You may find value in these prior discussions:

http://benefitslink.com/boards/index.php?showtopic=29283

http://benefitslink.com/boards/index.php?showtopic=13240

[Guest TAG]

Jean,

I don't have a direct link, but here is a summary of Arkansas that we put together from various info. Let me know if you come up with anything different.

Eligible Rollover Distribution Periodic and Nonperiodic

Required - when subject to federal withholding - recipient may not opt out of state withholding. Withhold at a rate of 5% of the taxable amount of the distribution.

Ineligible Rollover Distribution Periodic

Voluntary

Ineligible Rollover Distribution Nonperiodic

Required - when subject to Federal Withholding - If Federal tax withheld, recipient may not opt out of State withholding.

Withhold at a rate of 3% of the taxable amount of the distribution.

TAG

[Jean]

Here is one reference:

http://www.arkleg.state.ar.us/ftproot/acts...lic/act1309.pdf

AR Senate Bill 543

[JanetM]

Here is list done by our Bank.

2006_StateRegulation.pdf

[Guest mjb]

I think the chart is an excellent example as to why state income tax withholding should be preempted because it prevents uniform administration of the plan.

I do have a queston. What is meant by "all states allow no withholding"? I thought about 10 states required withholding from pension distributions.

I thought that New York exempted the first $20,000 of periodic pension distributions from state income tax and pensions from NYS municipal and state govts are exempt from tax. The chart does not note these exceptions.

[JanetM]

We use the bank for making benefit payments made from our many pension plans. I asked the same when we started using this system many years ago. The folks at the Bank say that all states allow you have no withholding. They added to that recently when NE changed their withholding to be the same as federal effective 1/01/06. Now they say for NE - the with holding uses the same status and exemptions for federal amounts unless the participant elects to have a different state withholding.

At this time we have about 12,000 folks getting checks each month. I have never had problem with the way the state tax has been processed and in 7 years have never heard from any state where I retirees live. (last count that was all of them, Puerto Rico, Canada and Mexico)

[Guest mjb]

That statement conflicts with several threads on this board including mandatory withholding on some distributions in MD effective July 1, 2005. According to information from Prudential ins co that was previously posted about 10 states require income tax withholding. The fact that you have not heard from any states only means that they are not aware of whether there is no withholding on distributions because they have no way to audit or require withholding on their residents by out of state plans.

[david rigby]

For example,

http://www.dor.state.nc.us/downloads/NC-4P.pdf

NC W-4P instructions include the following:

“NONPERIODIC DISTRIBUTIONS – 4% WITHHOLDING. Your payer must withhold a flat 4% from a nonperiodic distribution unless you choose not to have income tax withheld. A nonperiodic distribution means any distribution which is not a periodic payment. (The 4% is required on eligible rollover distributions and you cannot choose not to have income tax withheld from those distributions.) ….”

Thanks for the information that Northern Trust is providing incorrect advice.

[JanetM]

I was only speaking of periodic, not non-periodic. Could the rules be different for the two types?

[JanetM]

I was only speaking of periodic, not non-periodic. Could the rules be different for the two types?

Pax, you are saying that NC allows no withholding Says right in your post, unless you elect no withholding.

Maybe this is semantics. Anyone can elect any withholding they want. You can't withhold from them if they elect no withholding. If they make no election regarding withholding you are required to withhold - and it varies by state.

I don't think Northern gives out incorrect data at all.

[david rigby]

Janet,

please note the parenthetical sentence.

[Bird]

I found that language to be bizarre and dug a little more - pax is absolutely right. It's explained a little less cryptically here: NC directive

Curiously, they say it applies to an "eligible rollover distribution" but they don't appear to limit it to amounts that are not rolled over - i.e. the plain language would appear to mean that it applies even if the amount is rolled over(!)

Thankfully, we're not too close to NC...

(Edit - I guess this takes care of rollovers - "Except for eligible rollovers, a recipient of a pension payment who has federal income tax withheld can elect not to have State income tax withheld." - "Never mind.")

[Guest RJMOB]

JanetM:

The quick reference chart is a good start. I assume "qualified" means 'Rollover Eligible'.

However, as the other posts indicate, some of the information is questionable.

Take Mississippi for instance. The chart indicates no withholding on qualified distributions. But the following MS State Tax Commission link indicates that "generally, pension and retired pay are treated as wages subject to withholding".

http://www.mstc.state.ms.us/taxareas/indiv...es/ireg1102.pdf Tax_Dept__Name___Web_Site.doc

This is pretty much confirmed by their tax withholding instruction form Pub. 89-700-04-1 (Rev. 12/04). The instruction form includes a laddered tax rate schedule. Example: 5% of Taxable portion >$10k + $350, etc. Also, withholdings are to be rounded to whole dollar.

Alabama withholding info seems to be on target. Alabama, however, treats retirees better than some other states: distributions from DB plans are not subject to Alabama income tax.

For everyone that's researching state withholding, here's an index of state tax departments and their websites...Tax_Dept__Name___Web_Site.doc

[Guest pendlerton]

Ok- so I have been assigned the task of gathering different state's tax withholding percentages, and whether it is mandatory or not. Although we had hired a company to obtain that information previously, we found that the information occasionally was out of date (i.e. Arkansas new mandatory w/h). I am slowly coming to the conclusion, thru reading these blogs, that there is no real great way to obtain state tax withholding information (with regards to a distribution from a qualified plan). Am I correct? Does anyone know of any subscriber service or software that would actively monitor this? The stuff that I've found so far seems to be outdated to some degree. If anyone has an idea to get this info- I would greatly appreciate it.

[david rigby]

Every state has a website, with links to its "department of revenue" or whatever they call it.

Does this still work? www.sisterstates.com

[Guest RJMOB]

PAX: Sisterstates gets you to the general tax website for each state, but you'll still lots of time trying to find the right link.

Pendlerton: One of the better references - although usually a bit behind any new or current year releases due to advance printing - is Aspen Publishers Pension Distribution Answer Book. (www.aspenpublishers.com)

[david rigby]

Here is list done by our Bank.

I wonder if anyone has an update from this 2006 chart Post No. 8.

[Guest beppie_stark]

We have referred to Cigna or Prudential's Pension Analyst Compliance Bulletin for a very useful table of State Income Tax withholding requirements. http://www.prudential.com/media/managed/PP...ovs-PA-0906.pdf

However the most recent update is 2006. I know my home state of Michigan is changing in 2012. Is anyone aware of other state changes since 2006?