withholding law

Alan: Happy New Year. Question concerns withholding from Lifetime Income Benefit. Two companies say any amount I choose up to 100%. However if no choice made by me they will do 10%. A third states 0%, 10% and 100% are only options BY LAW. How can all 3 be right with different statements? I tried to find federal income tax withholding but there were so many links I gave up in frustration.

You are such a great resource. Any help would be appreciated.

Thanks,
Brndf



The difference likely relates to whether these companies have identified the payments as periodic or non periodic payments. Even though you have not annuitized the contract, the payments resemble periodic payments and if so you would be asked to submit a W-4P where you specify a number of exemptions as in wage withholding. The first two companies refer to the 10% default rate which only applies to non periodic payments, so this indicates they probably consider them non periodic. If a company asks you for a W-4P to treat the payments like wage income, that indicates they consider the payments periodic. Did a W-4P ever come up? The 3rd company may also consider these as non periodic, and the 0 and 10 rates reflect the tax code. Rates in excess of 10 are based on company options, but it is ridiculous that they would not offer anything between 10 and 100, and I am not aware of any such law that prevents them from doing so.



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