602 / Are amounts received under commercial annuity contracts subject to withholding?

The payee, however, generally may elect not to have anything withheld, which is commonly chosen. In addition, only the amount that is reasonable to believe is includable in income is subject to withholding, not any return of principal payments.

If withholding occurs from periodic payments (i.e., an annuitized contract), the amounts are to be withheld at the same rate as wages. Payments are periodic, even if they are variable, if they are payable over a period of more than one year.

If payments are not periodic, 10 percent of the includable amount is withheld. Payments made to the beneficiary of a deceased payee are subject to withholding under the same rules.¹