Internal Revenue Service Proposes Updates to Withholding on Certain Periodic Retirement and Annuity Payments Under Section 3405(a) Pursuant to TCJA

On May 27, 2020, the Internal Revenue Service (IRS) published a notice of proposed rulemaking titled Income Tax Withholding on Certain Periodic Retirement and Annuity Payments Under Section 3405(a). The proposed rule provides guidance to taxpayers about the default withholding rate for certain periodic retirement and annuity payments after December 31, 2020.

Before the Tax Cuts and Jobs Act (TCJA), the default withholding rate for certain periodic retirement and annuity payments for which there was no withholding certificate was for a married individual with three exemptions. The TCJA amended the default withholding rate to be “determined under rules prescribed by the Secretary.” The Secretary’s determination will be in the applicable forms, instructions, publications, and other guidance prescribed by the Commissioner. Through Notices 2018-14, 2018-92, and 2020-3, the Secretary has provided that the default withholding rate would be a married individual with three withholding allowances for 2018, 2019, and 2020, respectively.

The IRS is certifying that the rule will not have a significant economic impact on a substantial number of small entities. While the agency acknowledges that the proposed rule will likely affect a substantial number of small entities, it has determined that the economic impact will not be significant because the proposed rule incorporates a TCJA legislative amendment to remove the reference to a specific default withholding rate to one determined by the Secretary. Notwithstanding its certification, the IRS specifically requests comments on any impact the proposed rule will have on small entities.

The comment period closes on July 27, 2020. There is no public hearing set for this proposed rule. Any requests for the IRS to hold a public hearing must also be received by July 27, 2020.

• Review the notice or submit comments here.
• Advocacy Contact: Charles Jeane at (202) 205-7168.