withholding from LIB annual payment

Submitted by Maria Difalco on Fri, 2015-06-12 22:44

Are you aware of any IRS tax code rule which states that the client has only 2 options for withholding – 10% of payment or no withholding? In the past I have always chosen an amount that was less than 10% with no problem. Again this year I requested a smaller amount.
I was shocked to receive my check and find that 10% had been withheld, completely ignoring my request. When I called the company they told me they had to withhold 10% due to IRS code, regardless of my request. When asked to supply this ‘code requirement’, the person I spoke with said they would have to call me back. It has been over a week and no reply.

Something smells fishy to me.

As always your insights are appreciated.

Thanks

B



Submitted by Alan - IRA critic on Sat, 2015-06-13 01:17

I suspect the problem lies in determining if an LIB distribution is considered a periodic payment or not. The IRS is frequently well behind various annuity developments. A periodic payment can be subject to wage withholding rules under which 10% would not be a minimum. For a typical IRA distribution, which is a non periodic payment, the 10% rate is minimum as follows:

In Publication 575, the IRS says, “Unless you choose no withholding, the withholding rate for a nonperiodic distribution (a payment other than a periodic payment) that is not an eligible rollover distribution is 10% of the distribution. You can also ask the payer to withhold an additional amount using Form W-4P.”



Submitted by Maria Difalco on Wed, 2015-06-17 12:30

Alan: since this is an annual payment for life, I am not sure how the IRS would categorize.    What happened to the option of selecting your own withholding amount  which has always been available over the last ten years? Thanks:  B



Submitted by Maria Difalco on Wed, 2015-06-17 15:13

Alan:  since this is annual payment until death, I’m not sure how to categorize it.  For the last ten years I have always selected my own withholding well below the 10% level.   Why not this year?  I keep getting the run around from the company.Thanks, B



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