Frequently Asked Questions – Taxes
The IRS released a revised Form W-4P (Withholding Certificate for Periodic Pension or Annuity Payments), which includes substantial changes to the federal tax withholding elections available, as well as changes to the calculation MPERS performs to determine the amount to be withheld, as of January 1, 2023.
A significant change to the W-4P form is that filers will no longer be able to adjust their withholding by electing a specific number of withholding allowances. The IRS now offers new input fields for increasing or decreasing the amount to withhold, including fields for tax credits and deductions.
MPERS members and beneficiaries who already receive ongoing payments and who do not wish to make changes to their federal tax withholding elections are not required to file a new form.
2023 Federal Tax Withholding Changes
Why are federal tax withholding elections changing?
The federal Tax Cuts and Jobs Act of 2017 changed the way income tax is calculated. Among the changes is an increased standard deduction and removal of the dependent exemption. While the IRS did not immediately change procedures for calculating federal income tax withholding to coincide with the removal of the dependent exemption, which withholding allowances were tied to, it is doing so now.
How is the new federal tax withholding election form for periodic payments different from the prior form?
Previously, federal tax withholding calculations for non-rollover eligible periodic payments were based on the filing status (married or single) and number of withholding allowances reported on your federal tax withholding election form. The new calculation allows an additional filing status of “head of household” and discontinues the use of withholding allowances. It also allows new fields for adjusting the amount to be withheld by incorporating other income, deductions, and tax credits into the calculation.
Am I required to file a new tax withholding election form even if I do not intend to change my tax withholding elections?
No, if you are receiving ongoing benefits and you do not wish to change your withholding elections, you are not required to submit a new tax withholding election form.
We will continue to withhold federal income tax from your benefit payments based on the elections we have on file, including the number of withholding allowances.
If I make no changes to my federal tax withholding elections, will my federal tax withholding amount stay the same?
If you make no changes to your federal tax withholding elections, we will continue to use the marital status, number of withholding allowances, and additional withholding amount we have on file to calculate your withholding. However, the actual amount withheld may change due to a difference in rounding when we transition from the current monthly tax withholding tables to the new annual tax withholding tables.
Your federal tax withholding may also change when tax tables are updated annually or when your benefit amount changes.
Am I allowed to update my filing status or additional amount to be withheld without changing the number of withholding allowances I claim?
Withholding allowances are no longer used to calculate federal tax withholding.
When you file a new federal income tax withholding election form, any existing withholding allowances will cease to be used, and your federal tax withholding will be calculated using the new method. Use the instructions and worksheets on IRS Form W-4P (Withholding Certificate for Periodic Pension or Annuity Payments) at irs.gov to assist completion of your form.
When will the new form and calculation take effect?
Any new benefits beginning on or after January 1, 2023, are subject to the new form and calculation. Also, any changes in federal tax withholding elections that take effect on or after that date must use the new form fields and calculation method.
When is the deadline to submit changes using the existing format that includes withholding allowances?
The cut-off date for updates using the old format is December 15, 2022.
When will I be able to make elections using the new format?
You are currently able to submit paper forms for changes effective January 1, 2023. We expect you’ll be able to update your tax withholding elections using myMPERS Secure Member Access early January 2023.
Where can I find more information about these changes?
Additional Tax Information
How do I elect my tax withholding preferences?
If you are a registered myMPERS user, you can complete your elections online.
You may also complete the federal and/or Missouri state W-4P and mail it to us. If received by the 15th of the month, the new election will be reflected in the benefit payment for that month.
If I do not elect a tax withholding preference, how will taxes be withheld from my monthly benefit payment?
If you do not elect a tax withholding preference, MPERS will still withhold federal and state taxes based on the following:
- Non-Rollover Eligible Distributions: Federal withholding will be single with no adjustments.
- Eligible Rollover Distributions: Federal withholding will be 20%. MPERS does not automatically withhold Missouri state tax. You must complete a MO W-4P Withholding Certificate for Pension or Annuity Statements should you want Missouri state taxes withheld from your benefit payment.
What are my options for federal and state tax withholding?
Generally, the method and rate of withholding depends on whether:
- The payment is rollover eligible.
- The payment is delivered outside the U.S.
- You are a nonresident alien individual, a nonresident alien beneficiary, or a foreign estate.
Special withholding rules apply to payments outside the U.S. and payments to a foreign person.
Your tax withholding options also depend on your benefit type and whether the payment is eligible for rollover distribution.
If you are receiving a monthly benefit that is not eligible for rollover distribution, you may elect one or more of the following options:
- No federal tax withholding.
- Withholding federal income tax based on the tax table.
- An additional amount withheld from each benefit payment.
If you receive a distribution that is eligible for rollover but you do not roll it over directly to another qualified retirement plan or IRA, your payment is taxable.
The federal tax rate for an eligible rollover distribution is 20%. MPERS is required to withhold the 20%. You cannot opt out of federal tax withholding for eligible rollover distributions. MPERS will not withhold the 20% federal income tax for rollover eligible distributions transferred directly to an IRA or other qualified plan.
Caution: There are penalties for not paying enough federal tax during the year either through withholding or estimated tax payments. See IRS Publication 505, Tax Withholding and Estimated Tax, at IRS.gov for more information.
How do I calculate the amount of tax withholding?
To calculate the amount of tax withholding, use IRS Form W-4P, Withholding Certificate for Pension or Annuity Payments, available at IRS.gov.
If you are registered on myMPERS, you can estimate your tax withholding online.
How often should I adjust my tax withholding?
Because your tax situation may change from year to year, you may want to review your withholding each year.
If I reside outside Missouri, what is my tax withholding option?
If you do not live in Missouri but are required to file a Missouri state tax return, you may request MPERS to withhold Missouri state income taxes.
I receive two different benefits each month. Can I withhold taxes differently on each one?
If you receive different types of monthly payments from MPERS, you may elect a different tax withholding amount for each type of payment.
If you are registered on myMPERS, you may make these elections online.
You may also complete a separate Withholding Certificate for Pension or Annuity Payments forms for each payment type and send it to MPERS.
If I want to make a change to my tax preferences, when will the change take effect?
Any changes received by the 15th of the month, will be implemented that month. Anything received on the 16th or later will be implemented the following month.
I made an election to have my taxes withheld based on the tax tables. Why are no taxes being withheld from my benefit payment?
If you elect to have tax withholding based on the tax table, you might not have any taxes withheld from your monthly benefit. This will occur in cases where the monthly taxable allowance is below the minimum amount required for withholding based upon the tax table you have elected.
How are lump-sum distributions taxed?
Lump-sum distributions, including a refund of employee contributions, are subject to special tax provisions.
For more information on these rules, see the MPERS publication, Special Tax Notice for Lump Sum Distributions.