Withholding Income Taxes on IRAs, Annuities, and Compensation Plans

(1) The withholding of income taxes from commercial annuities, employer deferred compensation plans, and individual retirement plans is mandatory. However, an individual may elect, under certain circumstances, to have no withholding of income taxes. Such an election will remain in effect until revoked by the individual.

(2) An individual may not make an election to have no withholding of income taxes from the amount of a payment from a plan which is wages as defined in ORS 316.162. Therefore, an individual may not make an election if the individual is receiving payments from an employer deferred compensation plan as defined in IRC 457 or a nonqualified plan under IRC 403 if the contributions to the plan or payments from the plan are wages.

(3) The payer of any periodic payment must withhold income taxes as if the payment were wages using the withholding tables prepared and furnished by the department. The exemptions for state withholding purposes will be the same as listed on federal Form W-4P. If no withholding election form has been filed by the payee, the withholding status is single and the number of exemptions is zero.

(4) The payer of any nonperiodic distribution must withhold income taxes from such a payment at a rate of eight percent of the amount of money or the fair market value of other property received in the distribution.

(5) The minimum amount of income tax withholding per payee must be no less than 10 dollars per distribution. The payer is not required to determine benefits subject to Oregon tax when figuring income tax withholding.

(6) If an individual has elected to have no federal income tax withholding from payments or distributions, there must be no state income tax withholding unless the individual notifies the payer, in writing, otherwise.

(7) The payer must provide a form to each payee, prior to the first periodic payment, which must explain the payee’s right to elect to have no income tax withheld. A completed form must be returned to the payer no later than 30 days after the mailing date. If the payee does not elect out of income tax withholding, it is the payee’s responsibility to provide the payer with a completed Form W-4P which properly reflects the income tax withholding needed for Oregon purposes. If a completed Form W-4P is not provided, the payer must withhold income taxes as directed in sections (3) to (5) of this rule. A separate election form must be provided to the payee prior to each nonperiodic distribution. The election form must be returned to the payer no later than 30 days but can be returned as early as necessary to meet the date of distribution. If a completed form is not returned, the payer must withhold income tax at the established rate. The payer may use federal Form W-4P or a form that includes the same information as the Form W-4P.

(8) The payee may revoke the election to have income tax withholding or may change the amount of income tax withholding. The payee must send a written request to the payer using federal Form W-4P or an appropriate form furnished by the payer. The revocation or change will be effective within 45 days after receipt by the payer.

(9) The payer must be considered an employer and subject to the same income tax withholding rules as are imposed under ORS 316.162 to 316.212 for withholding of income taxes from wages. The department must provide appropriate forms, instructions and an account identification number necessary for reporting and remitting payments. [Publications: Contact the Oregon Department of Revenue for information about how to obtain a copy of the publication referred to or incorporated by reference in this rule pursuant to ORS 183.360(2) and ORS 183.355(1)(b).]