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The Internal Revenue Service has issued final regulations updating the federal income tax withholding rules for certain periodic retirement and annuity payments after Dec. 31, 2020, as well as business expense deduction for meals and entertainment.
Prior to the Tax Cuts and Jobs Act of 2017, if no withholding certificate was in effect for a taxpayer's periodic payments, the amount to be withheld from the payments was determined by treating the taxpayer as a married individual claiming three withholding exemptions.
The tax law amended the rule to "provide that the rate of withholding on periodic payments when no withholding certificate is in effect (the default rate of withholding) would instead be determined under rules prescribed by the Secretary of the Treasury," the IRS states.
The final regulation, which provides guidance for 2021 and future calendar years, specifies that Treasury and IRS will provide the rules and procedures for determining the default rate of withholding on periodic payments in applicable forms, instructions, publications and other guidance.
In July 2020, the IRS released a draft of a redesigned 2021 Form W-4P and instructions intended to align with the redesigned Form W-4, Employee's Withholding Certificate, the IRS explained.
The draft 2021 Form W-4P also proposed a new default rate of withholding on periodic payments that begin after Dec. 31, 2020.
