New Income Tax Withholding Table


In tax years 2009 and 2010, the Making Work Pay provision of the American Recovery and
Reinvestment Act will provide a refundable tax credit of up to $400 for individuals and up to $800 for
married taxpayers filing joint returns. In order to pump these credits into the economy as fast as
possible, the income tax wage withholding tables have been revised to provide lower withholding.

The reduced IRS income tax withholding tables implementing the tax credit must also be used for
pension payments beginning April 1, 2009, even though private pension recipients are not eligible for
the Making Work Pay credit unless they have earned income.* Since the new withholding tables
reduce the taxes withheld from all taxpayers, pension recipients may not have enough tax withheld
from their pension benefits to cover their tax liability on those payments. (Note: Members of Congress
have notified IRS that this was not the intent of the legislation, but at this time there is no indication
the tables will be changed to accommodate this issue.) This may lead to a retiree or beneficiary
unexpectedly owing additional taxes at the end of the year, although the unpaid amount will generally
be small. The IRS is recommending that pension recipients evaluate their expected tax liability for the
year and consider whether they need to make estimated tax payments or adjust their withholding on
Form W-4P, Withholding Certificate for Pension or Annuity Payments. Plan administrators are not
required to advise payees of the automatic reduction in withholding taxes, but a notice included in IRS
Publication 15-T (see modified sample below) could be adapted to inform recipients of the automatic
reduction and their option to adjust withholding.

Periodic pension payments

Generally, periodic payments are pension or annuity payments made to a plan participant for more
than one year that are not eligible for rollover to another retirement plan or an IRA. Periodic payments
include substantially equal payments made at least once a year over the life of the employee and/or
beneficiaries or for 10 years or more. For income tax withholding purposes, these payments are
treated as if they are wages. Plan administrators calculate the tax withholding by using the recipient’s
Form W-4P and the federal income tax withholding tables and methods in Publication 15, Circular E,
Employer’s Tax Guide. It is important to note that recipients can elect not to have income tax withheld
from the payments.

*The Making Work Pay Credit phases out for single taxpayers with modified adjusted gross income of
more than $75,000, and married couples with modified adjusted gross income of more than $150,000.
Singles with modified adjusted gross income of more than $95,000 and couples with modified
adjusted gross income of more than $190,000 are ineligible for the credit.

Notice to Recipients of Periodic Payments
Changes in Income Tax Withholding
Effective April 1, 2009

New withholding tables may reduce the amount of income tax withheld from the payments to you from
a retirement plan or annuity contract. The new tables, prescribed by the Department of the Treasury,
reflect the Making Work Pay credit and other changes resulting from the American Recovery and
Reinvestment Act of 2009.

You do not have to submit a Form W-4P, Withholding Certificate, for Pension or Annuity Payments, to
get the automatic withholding change. If you do not want to have your withholding reduced (because,
for example, you have more than one job or you are married and your combined income places you in
a higher tax bracket), you may want to file a new Form W-4P with your plan administrator or annuity
provider. You may claim fewer withholding allowances on line 5 or request additional amounts to be
withheld on line 6. For additional help, see IRS Publication 919, How Do I Adjust My Tax
Withholding? or visit the IRS website at and use the “Withholding Calculator.”

This publication is intended to provide general information to our clients and friends. It does not constitute
accounting, tax, or legal advice, nor is it intended to convey a thorough treatment of the subject matter.


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