On November 9, 2021, the IRS published a third early release of DRAFT Form W-4R, Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions - primarily as a companion to the DRAFT Form W-4P and for taxpayer review and feedback. The coversheet to this form includes a note that the IRS published a fourth early release of DRAFT Form W-4P, Withholding Certificate for Periodic Pension or Annuity Payments on November 5, 2021, although this form has not been available.
Form W-4P is now split into two forms. One is the Form W-4P for periodic pensions and annuities and the second is Form W-4R. The latest DRAFT Form W-4-R has not changed; however, the latest DRAFT Form W-4P is said to include changes to the withholding worksheet. Although the final redesigned Form W-4P and Form W-4R will be released for 2022, the IRS has decided to postpone the requirement to begin using these new forms until January 1, 2023.
What should you do? In the meantime, payors should update their system programming for the redesigned DRAFT Forms W-4P and W-4R. Also, take note of the withholding tables for 2022, which will work with both the 2021 Form W-4P and the 2022 Form W-4P. The 2021 Form W- 4P will no longer be available for use after December 31, 2022.
What about substitute electronic Forms W-4P and W-4R? Payors using electronic forms must confirm that they exactly replicate the text from the face of the paper Form W-4R between lines 1 and 2. There is an exception for electronic systems that are being used exclusively for non-periodic payments. In this specific situation, the electronic form may omit the second bullet. There is also an exception for electronic systems that are being used exclusively for eligible rollover distributions. Here, the electronic form may omit the first bullet. Further, electronic systems must exactly replicate the text on line 2 and the 2022 Marginal Rate Tables as they appear after the paper Form W-4R. This includes all of the related text boxes above and within those tables.
Electronic Forms W-4P and R may not include pop-ups or hoverboxes. Toggles must be off as a default where the electronic system uses them for steps that limit the amount of text that is viewable. If the electronic system places steps on different pages, then it must require the user to visit each page prior to signing the form electronically. The electronic system must include a hyperlink to Form W- 4R on irs.gov or include the General and Specific instructions in their entirety in the electronic system interface itself.
Check out the DRAFT Forms W-4R here: