IRA

IRS Issues Deadline Relief for Tennessee Storm Victims

The IRS has issued a news release announcing the postponement of certain tax-related deadlines for victims of severe storms, straight-line winds, and tornadoes in Tennessee. The tax relief postpones various tax filing deadlines that began December 10, 2021. Affected individuals and households who reside or have a business in Cheatham, Davidson, Dickson, Gibson, Henderson, Henry, Lake, Obion, Stewart, Sumner, Weakley, and Wilson counties, as well as taxpayers with records located in the covered area that are needed to meet covered deadlines, qualify for relief.

In addition to extending certain tax filing and tax payment deadlines, the relief includes completion of many time-sensitive, tax-related acts described in IRS Revenue Procedure 2018-58 and Treasury Regulation 301.7508A-1(c)(1). Affected taxpayers with a covered deadline on or after December 10, 2021, and before May 16, 2022, will have until May 16, 2022, to complete the acts. This includes filing Form 5500 series returns that are required to be filed on or after December 10, 2021, and before May 16, 2022.

“Affected taxpayer” automatically includes any individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Those who reside or have a business located outside the covered disaster area, but have been affected by the disaster, may contact the IRS to request relief.


IRS Provides Guidance Regarding Substantially Equal Periodic Payments from Qualified Retirement Plans

The IRS has issued Notice 2022-06, providing guidance on whether periodic payments from an individual account under a qualified retirement plan are considered a series of substantially equal periodic payments (SEPPs). Notice 2022-6 modifies and supersedes Revenue Ruling 2002-62.

SEPPs must be taken at least annually and are based on the life expectancy of the account owner or account owner and beneficiary. Account owners can choose from one of three methods to determine their payments: 1) the required minimum distribution (RMD) method, 2) the fixed amortization method, or 3) the fixed annuitization method. To qualify for this early distribution penalty exception, a series of payments must continue unchanged until the later of five years or until the account owner reaches age 59½.

Final regulations containing updated life expectancy tables were issued (and announced) in 2020. The IRS updated the life expectancy tables to ensure that future required payments from retirement savings arrangements would better reflect actual life expectancies. Notice 2022-06 notes that when using the RMD or fixed amortization methods, the new life expectancy tables are to be used for any series of payments commencing on or after January 1, 2023, and may be used for a series of payments commencing in 2022. Account owners that begin a series of payments before 2023 using the RMD method may switch to an updated table without being treated as having a modification of payments.

This Notice will be reviewed further, and any items of significance shared.


IRS Announces Applicable Federal Rates for February 2022

January 19, 2022 – The IRS has issued Revenue Ruling 2022-3, which contains the applicable federal rates (AFR) for February 2022. These rates are used for such purposes as calculating distributions from retirement savings arrangements that meet the requirements for substantially equal periodic payments (a 10 percent early distribution penalty tax exception), also referred to as “72(t) payments.”


Washington Pulse: New Retirement Payment Withholding Procedure is (Finally) Final

The IRS released a new withholding form on January 4, 2022: Form W-4R, Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions. The IRS also issued a revised Form W-4P, Withholding Certificate for Pension or Annuity Payments. As a result, payers and individuals will have a new process for calculating and electing federal income tax withholding on retirement distributions. Although the IRS will not require payers to use the new and revised forms until January 1, 2023, payers may start using them in 2022.

Tax Withholding in General

With few exceptions, a part of every paycheck is withheld by employers to offset or prepay a portion of federal income taxes that may be owed. Although the most universal tax withholding is assessed on compensation from employment, withholding is also applied to other kinds of income, including distributions from retirement savings arrangements.

Retirement Distribution Withholding Requirements

IRA and employer plan distributions are subject to certain withholding requirements. Employer plan distributions—such as those from 401(k) plans—that are made payable to taxpayers and that are eligible to be rolled over—are subject to mandatory 20 percent federal tax withholding. The mandatory 20 percent withholding rate applies only to the taxable portion of the distribution. IRA distributions and employer plan distributions that are not eligible to be rolled over—such as RMDs or hardship distributions—are subject to different withholding rates based on whether the distribution is a periodic distribution or a nonperiodic distribution.

A periodic distribution is a distribution that is an annuity or similar periodic payment. The standard withholding rate for periodic distributions will vary based on factors such as the total distributions received annually and the recipient’s status (marital or head-of-household). Recipients can waive or increase withholding on their periodic distributions.

Distributions that are not periodic distributions are called “nonperiodic” distributions. For these distributions, a standard 10 percent withholding rate applies unless the recipient elects to waive withholding or to withhold at a higher rate.

Elections are Changing

Until now, withholding elections for both periodic and nonperiodic distributions have been captured on the same IRS Form W-4P. Beginning in 2023, withholding elections for periodic distributions will be made on the revised Form W-4P. Withholding elections for nonperiodic distributions will be made on the new IRS Form W-4R. An important new development is the ability of those receiving nonperiodic distributions to elect a withholding rate of less than 10 percent.

Default Withholding Rates

If a taxpayer receiving nonperiodic distributions fails to elect a withholding rate or to waive withholding, the 10 percent rate will apply. In the past, the default withholding rate for periodic distributions was “married claiming three withholding allowances.” Under the new withholding rules, the default—if no election is made—will be “single with no adjustments.” This will result in a larger amount withheld for federal taxes.

Pre-2022 Elections Will Carry Over

Taxpayer withholding elections, including defaulted rates, made in 2021 or before for both periodic and nonperiodic distributions will apply to future distributions unless a new election is made.

Revised Implementation Plan

The IRS had originally planned on requiring payers to use the new forms in 2022. But because the final forms were released in January 2022, the IRS granted additional time for payers and service providers to update their systems. Payers will not be required to use the new forms until January 1, 2023. This means that in 2022, the 2021 IRS Form W-4P can be used for taxpayer withholding elections for both periodic and nonperiodic distributions. Importantly, with these 2022 forms now available, payers and service providers can update their system programming. The IRS encourages use of the new forms in 2022, if possible.

The IRS notes that the 2022 withholding tables that are provided in IRS Publication 15-T, Federal Income Tax Withholding Methods, can be used with the 2021 Form W-4P.

Stay Tuned

Over the next few months, payers and service providers will be busy updating their systems and forms to reflect the necessary changes. Ascensus will continue to follow any new guidance as it is released. Please visit ascensus.com for the latest news and developments on this and other issues.

 

 

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IRS Issues Deadline Relief for Washington Flooding and Mudslide Victims

The IRS has issued a news release announcing the postponement of certain tax-related deadlines for victims of flooding and mudslides in Washington. The tax relief postpones various tax filing deadlines that began November 13, 2021. Affected individuals and households who reside or have a business in Clallam, Skagit, and Whatcom counties, and the Lummi Nation, Nooksack Indian Tribe, and Quileute Tribe, as well as taxpayers with records located in the covered area that are needed to meet covered deadlines, qualify for relief.

In addition to extending certain tax filing and tax payment deadlines, the relief includes completion of many time-sensitive, tax-related acts described in IRS Revenue Procedure 2018-58 and Treasury Regulation 301.7508A-1(c)(1). Affected taxpayers with a covered deadline on or after November 13, 2021, and before March 15, 2022, will have until March 15, 2022, to complete the acts. This includes filing Form 5500 series returns that are required to be filed on or after November 13, 2021, and before March 15, 2022.

“Affected taxpayer” automatically includes any individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Those who reside or have a business located outside the covered disaster area, but have been affected by the disaster, may contact the IRS to request relief.


April 18 is IRS Tax Filing Deadline for Most Filers

The IRS has announced that tax filing season will begin on January 24, 2022. The filing deadline for 2021 tax returns or requests for extension is April 18, 2022, for most taxpayers because of Emancipation Day in Washington, D.C. For taxpayers in Maine and Massachusetts, the deadline to file is April 19, 2022, because of Patriots’ Day. Taxpayers who request an extension will have until October 17, 2022, to file their 2021 returns.


IRS Releases Draft of 2021 Tax Year IRA Publication 590-B

The IRS has issued a draft 2021 Tax Year Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs). Several noteworthy items have been outlined in the “What’s New” section of the publication.

  • Appendix B has been updated to reflect the new life expectancy and distribution period tables that are applicable to distribution calendar years beginning on or after January 1, 2022.
  • Form 8915-F replaces Form 8915-E for reporting qualified 2020 disaster distributions and repayments of distributions made in 2021 and 2022.
  • The calculation of qualified charitable distributions may require an adjustment and a worksheet has been added.

IRS Issues Deadline Relief for Colorado Wildfire Victims

The IRS has issued a news release announcing the postponement of certain tax-related deadlines for victims of wildfires and straight-line winds in Colorado. The tax relief postpones various tax filing deadlines that began December 30, 2021. Affected individuals and households who reside or have a business in Boulder county, as well as taxpayers with records located in the covered area that are needed to meet covered deadlines, qualify for relief.

In addition to extending certain tax filing and tax payment deadlines, the relief includes completion of many time-sensitive, tax-related acts described in IRS Revenue Procedure 2018-58 and Treasury Regulation 301.7508A-1(c)(1). Affected taxpayers with a covered deadline on or after December 30, 2021, and before May 16, 2022, will have until May 16, 2022, to complete the acts. This includes filing Form 5500 series returns that are required to be filed on or after December 30, 2021, and before May 16, 2022. Affected taxpayers will have until May 16, 2022, to make 2021 IRA contributions.

“Affected taxpayer” automatically includes any individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Those who reside or have a business located outside the covered disaster area, but have been affected by the disaster, may contact the IRS to request relief.


2021 Form 5500 Series Informational Copies Released

December 30, 2021 – The Department of Labor’s Employee Benefits Security Administration (EBSA), the IRS, and the Pension Benefit Guaranty Corporation (PBGC) jointly released the 2021 Form 5500, Annual Return/Report of Employee Benefit Plan, 2021 Form 5500-SF, Annual Return/Report of Small Employee Benefit Plan, and their respective instructions. The IRS likewise released the 2021 Form 5500-EZ, Annual Return of a One-Participant Retirement Plan or Foreign Plan, and instructions.

In an accompanying news release, the EBSA reminds filers that these are informational copies of the Form 5500 series and cannot be used for filing. The news release further highlights changes made to the Forms, including limited changes announced in a Federal Register Notice on December 29 regarding multiple-employer plans as required by the SECURE Act for 2021. Further SECURE Act related changes will be implemented for the 2022 reporting year and will be announced later. Additional changes for 2021 include the following:

  • A new checkbox for plans retroactively adopted as permitted by the SECURE Act.
  • Updated instructions to reflect the cost-of-living adjustment increase of the civil filing penalty from $2,233 to $2,259.
  • Changes to Schedule MB to report the amount of withdrawal liability payments, revised mortality tables, and changes related to net investment losses due to the coronavirus from the American Rescue Plan Act of 2021.
  • Changes to Schedule SB that expand Line 6 target normal cost into multiple lines related to target normal cost.

The forms will be reviewed for further changes of significance and any findings of consequence will be shared.


IRS Issues Deadline Relief for Arkansas Storm Victims

December 29, 2021 – The IRS has issued a news release announcing the postponement of certain tax-related deadlines for victims of severe storms and tornados in Arkansas. The tax relief postpones various tax filing deadlines that began December 10, 2021. Affected individuals and households who reside or have a business in Craighead, Jackson, Mississippi, Poinsett, and Woodruff counties, as well as taxpayers with records located in the covered area that are needed to meet covered deadlines, qualify for relief.

In addition to extending certain tax filing and tax payment deadlines, the relief includes completion of many time-sensitive, tax-related acts described in IRS Revenue Procedure 2018-58 and Treasury Regulation 301.7508A-1(c)(1). Affected taxpayers with a covered deadline on or after December 10, 2021, and before May 16, 2022, will have until May 16, 2022, to complete the acts. This includes filing Form 5500 series returns that are required to be filed on or after December 10, 2021, and before May 16, 2022.

“Affected taxpayer” automatically includes any individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Those who reside or have a business located outside the covered disaster area, but have been affected by the disaster, may contact the IRS to request relief.