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State withholding on loan offset

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A terminated participant in Michigan has an outstanding loan.  Michigan withholding is 4.25%.  Do I also apply the withholding percentage for the state to the loan balance when calculating the state withholding?

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My understanding is if there is another taxable distribution where the participant is receiving funds then you withhold on the total including the loan offset. If there is no cash distribution, like the participant is rolling over the rest to an IRA, then you don't withhold.  This understanding is for Federal Tax withholding but I believe most states that have withholding on qualified plan withdrawals mirror the Federal rules though I don't know about MI specifically.


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