New Form W-4P for Federal Tax Withholding in 2023
In January 2022, the Internal Revenue Service (IRS) released a new 2022 Form W-4P – Withholding Certificate for Periodic Pension or Annuity Payments and a new 2022 Form W-4R – Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions.
Use of the new forms was optional for tax year 2022 but LAFPP is required to use them beginning January 1, 2023.
Note for California State Tax Withholding
The revised Form W-4P must be used for federal tax withholding only and may no longer be used for California state tax withholding. The California Franchise Tax Board has not updated its form, DE 4P – Withholding Certificate for Pension or Annuity Payments. As such, LAFPP has created a new form for pensioners to elect or make changes to California state tax withholding.
This form is available for download from the LAFPP website at Income Tax Withholding Form.
Form Submission Deadlines
If you plan to submit changes to your federal and/or California state tax withholding, please adhere to the following guidelines:
- The revised IRS Form W-4P for federal tax withholding and the new LAFPP California State Income Tax Withholding Form must be used to elect federal and California state tax withholding if effective on or after January 1, 2023.
- Changes to federal tax withholding submitted electronically via MyLAFPP on or after December 16, 2022 will be submitted under the new Form W-4P, that is effective January 1, 2023.
FREQUENTLY ASKED QUESTIONS
Why did the IRS change the Form W-4P?
Prior to the updates, the old Form W-4P was used to withhold federal tax from both periodic payments (e.g., monthly pension payments) and nonperiodic payments (e.g., DROP lump sum payments). The IRS redesigned the Form W-4P and created a new Form W-4R to simplify withholding, make tax withholding more accurate, and to be consistent with the recent federal tax law changes.
Why can’t I enter the number of allowances on the Form W-4P?
The IRS removed the option to enter allowances to be consistent with current tax law. Instead, Form W-4P considers information that affects your taxable income. Note however that the form to elect California state tax withholding has not changed and still allows you to enter a number of allowances.
I am satisfied with my current tax withholdings. Do I have to submit a new form?
If you do not wish to change your federal and/or California state tax withholding, LAFPP will continue to withhold taxes according to the elections we have on file for you until you submit new elections.
What happens if I do not submit my tax withholding elections?
Beginning January 1, 2023, if there are no tax withholding instructions on file for you, LAFPP is required to withhold federal tax from your taxable monthly pension payment based on a filing status of Single with no adjustments.
In addition, if you are a resident of California, LAFPP is required to withhold California state tax from your taxable monthly pension payment based on a filing status of Married and three allowances.
What if I do not want taxes withheld from my pension payment?
If you are receiving a taxable pension payment and do not want federal tax withheld, you can write “No Withholding” in the space below Step 4© and complete Steps 1(a), 1(b), and 5 only on the IRS Form W-4P. For MyLAFPP submissions, you can check the “No Withholding” box below Step 4© and complete Step 5 only in the “Federal Tax Instructions” section.
If you are a California resident receiving a taxable pension payment and do not want California state tax withheld, you can select Option 1 on the LAFPP California Income Tax Withholding Form. Be sure to complete the personal information section and sign and date the form. For MyLAFPP submissions, you can select the “No Withholding” option from the “Tax Calculation Method” drop down menu in the “State Tax Instructions” section.
How can I update my tax withholding elections?
You may submit your tax withholding elections electronically by logging into MyLAFPP or you can submit the appropriate tax withholding paper form(s) to LAFPP:
- Federal Tax Withholding: Please submit a completed and signed Form W-4P. The form is available for download from the IRS website at www.irs.gov/pub/irs-pdf/fw4p.pdf
- California State Tax Withholding: Please submit a completed and signed LAFPP California State Income Tax Withholding Form. The form is available for download from the LAFPP website at www.lafpp.com/sites/main/files/file-attachments/income-tax-withholding-form_0.pdf.
Submissions received after the 15th of the month will become effective the following month.
How do I complete the new Form W-4P?
Please see the “General Instructions” section of Form W-4P for information on how to complete the form.
I’m not sure how much should be withheld for taxes each month. Can you assist me with filling out the Form W-4P?
LAFPP cannot offer tax or legal advice. The Form W-4P contains a “General Instructions” section to assist you with completing the form. For further assistance, we encourage you to contact the taxing agency or your tax advisor.
Members Retiring or Exiting DROP
I am retiring on a Service Pension or exiting DROP on or before January 31, 2023. What form should I complete to have federal taxes withheld from my monthly pension payment?
Complete and submit the tax withholding forms provided to you by the DROP/Service Pensions Section. Please contact the DROP/Service Pensions Section for more details by email at firstname.lastname@example.org, or by phone at (213) 279-3100 or toll-free at (844) 88-LAFPP (52377).
If I do not submit a tax withholding form, how will my federal tax withholding be calculated for my monthly pension payment? How will my DROP payment be taxed?
If you do not submit the required tax withholding form(s), LAFPP is required to withhold federal tax from your taxable monthly pension payment based on a filing status of Single with no adjustments. Your entire DROP account balance will also be subject to a mandatory 20% federal tax withholding.
In addition, if you are a resident of California, LAFPP is required to withhold California state tax from your monthly pension payment based on a filing status of Married with three allowances. There is no requirement to withhold California state tax from your DROP account balance.