Distributions you receive from a retirement plan are subject to federal income tax withholding.  You can choose not to have income tax withheld, but if you do, you may have to make estimated income tax payments, depending on your overall federal income tax liability.  This will be determined by factors including your filing status, number of personal and dependent exemptions, the amount of the retirement payments you are receiving and any other taxable income you have.

Which Plans Are Subject to Withholding Tax

The withholding tax rules apply to the following types of retirement plans:

• A pension, profit-sharing, stock bonus, or annuity plan maintained by your employer,
• Any other deferred compensation plan,
• A traditional individual retirement arrangement (IRA), or
• A commercial annuity contract you purchase yourself, including an annuity, endowment, or life insurance contract.

The withholding tax applies to the taxable part of the distributions, and not to any nontaxable part, such as the portion that represents a return of your cost or investment in the plan or contract.

Choosing Not to Have Federal Income Tax Withheld

You can choose not to have income tax withheld from the distributions you receive, whether they are periodic or non-periodic, by using Form W-4P, Withholding Certificate for Pension or Annuity Payments.  There is a line on the form with a box to check if you do not want any federal income tax withheld from your pension or annuity.  But you cannot choose not to have federal income withheld from eligible rollover distributions.  Your choice will remain in effect until you revoke it.

Social Security Number and U.S. Home Address

When you complete Form W-4P you will need to be sure to include your taxpayer identification number (social security number).  Without it, the payer of your distributions will be obligated to withhold tax.  Also, if you are a U.S. citizen or resident, you will have to give a home address that is in the United States or its possessions.  If you give the address of a nominee, trustee, or agent who receives the payments on your behalf, but you do not indicate a home address in the U.S. or its possessions, the payer will also be obligated to withhold taxes.

Non-Resident Aliens

If you are not a U.S. citizen or resident and you do not have a U.S. home address, and you choose not to have income tax withheld, you must certify to the payer that you are not a U.S. citizen or resident and did not leave the country to avoid taxes.  But in this case, you may be subject to the flat 30% tax that applies to nonresident aliens.