9. Pensions and Annuities Generally, pension and annuity payments are subject to Federalincome tax withholding. The withholding rules apply to thetaxable part of payments from an employer pension, annuity,profit-sharing, stock bonus, or other deferred compensation plan.The rules also apply to payments from an individual retirementarrangement (IRA), an annuity, endowment, or life insurance contractissued by a life insurance company. There is no withholding on anypart of a distribution that is not expected to be includible in therecipient's gross income. Generally, recipients of payments described above can choose not tohave withholding apply to their pensions or annuities (however, seeMandatory Withholding below). The election remains ineffect until the recipient revokes it. The payer must notify therecipient that this election is available. Withholding Periodic Payments Generally, periodic payments are those payments for more than 1year that are not eligible rollover distributions (see discussionbelow). Periodic payments include substantially equal payments made atleast once a year over the life of the employee and/or beneficiariesor for 10 years or more. For withholding purposes, these payments aretreated as if they are wages. You can figure withholding by using therecipient's Form W-4P, Withholding Certificate for Pensionor Annuity Payments, and the income tax withholding tables and methodsin Circular E or the alternative tables and methods in thispublication. Recipients of periodic payments can give you a Form W-4P to specifythe number of withholding allowances and any additional amount theywant withheld. They may also claim exemption from withholding on FormW-4P or revoke a previously claimed exemption. If they do not submit aForm W-4P, you must figure withholding by treating a recipient asmarried with three withholding allowances. See Form W-4P for moreinformation. Nonperiodic Payments Withhold 10% of the taxable part of a nonperiodic payment that isnot an eligible rollover distribution. The recipient may requestadditional withholding on Form W-4P or claim exemption fromwithholding. Mandatory Withholding Payments delivered outside the United States.The election to be exempt from income tax withholding does notapply to any periodic or nonperiodic payment delivered outside theUnited States or its possessions to a U.S. citizen or resident alien.See Form W-4P for more information. Nonresident aliens can elect exemption from withholding only ifthey certify to the payer that they are not (1) a U.S. citizen orresident alien or (2) an individual to whom Internal Revenue Codesection 877 applies (concerning expatriation to avoid tax). Thecertification must be made in a statement to the payer under penaltiesof perjury. However, nonresident aliens who choose such exemption willbe subject to withholding under Code section 1441. See Pub. 515,Milan accommodationWithholding of Tax on Nonresident Aliens and ForeignCorporations, and the Instructions for Form 1042-S. Eligible rollover distributions.Withhold 20% of an eligible rollover distribution unless therecipient elected to have the distribution paid in a direct rolloverto an eligible retirement plan, including an IRA. An eligible rolloverdistribution is the taxable part of any distribution from a qualifiedplan or tax-sheltered annuity hotels Athen(but not an IRA) except: One of a series of substantially equal periodic payments (atleast annually) made for the life or life expectancy of the employeeand the employee's beneficiary or for a specified period of 10 yearsor more. Any part of a distribution that is a minimum distributionrequired by Code section 401(a)(9). A hardship distribution. A distribution will qualify forhardship if it is (a) made on account of immediate and heavy need, and(b) necessary to satisfy the need. This includes medical andeducational expenses and costs for purchasing a new residence, or toprevent eviction or foreclosure on a current residence. Other exceptions apply. See the Form 1099-R instructions inthe 2000 General Instructions for Forms 1099, 1098, 5498, andW-2G. ERROR MSGYou are not required to withhold 20% of an eligible rolloverdistribution that, when added to other rollover distributions made toone person during the year, is less than $200. A recipient of an eligible rollover distribution cannot claimexemption from the 20% withholding. However, a recipient may elect tohave more than 20% withheld using Form W-4P. Do not provide therecipient a Form W-4P for eligible rollover distributions unless he orshe wishes to request additional withholding in excess of themandatory 20%. Notice to recipient (section 402(f) notice).Generally, you must provide a written explanation to the recipientat least 30 but no more than 90 days before making an eligiblerollover distribution. You must explain the rollover rules, specialtax treatment for lump-sum distributions, direct rollover option, andthe mandatory 20% withholding rule. Notice 92-48, 1992-2 C.B. 377,contains a model notice you can use to satisfy this requirement. Similar rules apply to distributions from tax-sheltered annuities.The IRS has issued regulations on these requirements under sections401(a)(31), 402, 403(b), and 3405. Hosteles KilkennyDepositing and Reporting Withholding Report income tax withholding from pensions and annuities onForm 945, Annual Return of Withheld Federal Income Tax. Donot report these liabilities on Form 941. You must furnish therecipients and the IRS with Form 1099-R, Distributions FromPensions, Annuities, Retirement or Profit-Sharing Plans, IRAs,Insurance Contracts, etc. ERROR MSGDeposit withholding from pensions and annuities combined with anyother nonpayroll withholding reported on Form 945 (e.g., backupwithholding). Do not combine the Form 945 deposits with deposits forpayroll taxes. See page 2 of this publication for information onelectronic deposit requirements. Circular E and the separateInstructions for Form 945 include information on thedeposit rules.