Honoring Legacy W-4Ps with Flat Dollar Withholding

[BTG]

I'm sure most of us will recall that the IRS revamped the Form W-4P a few years ago, and the new form became mandatory for folks filing a new or updated withholding form beginning in 2023.  However, it is clear that participants who began receiving payments in 2022 and earlier are not required to make an updated election.  It is my understanding is that, for such a participant, the plan can continue to honor the withholding elections made on a validly submitted prior version of W-4P (unless and until the participant updates their elections using the new form).  I assume this incomes flat-dollar only withholding elections.  

Do you folks agree or disagree?

We have a client whose new systems vendor is telling them they cannot continue to honor pre-2023 flat dollar elections.

[Paul I]

I agree.  Here is the 2022 Form W-4P  https://benefitslink.com/src/irs/fw4p-dft-11052021.pdf as it was being implemented.  In particular, see the Caution on page 5.

Essentially, if a participant had an election prior to the implementation of the new form, the participant did not have to change their election, and a processor could use a computational bridge to for their system to solve their calculations to yield the pre-existing result.

There is a caveat I have seen that says if the participant's tax situation changes, then they need to file a new form.

I expect the new vendor is saying they cannot continue to honor the pre-existing elections because their system does is not set up have the computational bridge.

[BTG]

Thank you, Paul.  My understanding is that the computational bridge is an optional approach a payor can take to simplify their system if they don't want to maintain separate data fields to accommodate pre-2023 forms, but that a payor could choose to continue to maintain a more complicated system that honors the elections in the pre-2023 forms.  (As an aside, I'm not sure I understand how the computational bridge would apply to a flat dollar withholding election on a pre-2023 form.) 

Regardless, I agree with you that it sounds like in this case it's really a systems limitation of the vendor, rather than a legal issue.