Questions and answers relating to withholding on pensions, annuities, and certain other deferred income

(a) The following questions and answers apply for purposes of determining whether a payor of periodic payments or nonperiodic distributions from pensions, annuities, and certain other deferred income (other than eligible rollover distributions) must withhold federal income tax under section 3405(a) or (b) of the Code. For purposes of this section, references to the United States include possessions of the United States.

(b)(1) Q-1. Is an Army Post Office (APO), a Fleet Post Office (FPO), or a Diplomatic Post Office (DPO) address an address located within the United States for purposes of section 3405(e)(13)(A)?

(2) A-1. For purposes of section 3405(e)(13)(A), an APO, an FPO, or a DPO address is an address located within the United States.

(c)(1) Q-2. Is the payor of a designated distribution described in section 3405(a) or (b) required to withhold income tax from the distribution if the payee's residence address that is provided to the payor is located within the United States?

(2) A-2. If the payee's residence address that is provided to the payor of a designated distribution described in section 3405(a) or (b) is located within the United States, then the payor is required to withhold income tax from the distribution unless the payee has made a valid election of no withholding in accordance with section 3405(a)(2) or (b)(2). Any election of no withholding with respect to such a distribution under section 3405(a)(2) or (b)(2) is not valid if the payee instructs the payor to do one or more of the following in connection with the distribution:

(ii) Send the distribution to a financial institution or other person located within the United States with further instructions (such as for further credit to instructions) directing that the funds be forwarded to a financial institution or other person located outside of the United States; or

(iii) Send the distribution to a financial institution or other person pursuant to payment instructions (including addenda information) that reference an International Automated Clearing House Transaction (IAT), International Bank Account Number (IBAN), Society for Worldwide Interbank Financial Telecommunication (SWIFT) Business Identifier Code (BIC), or similar identifier linked to a financial institution or other person located outside of the United States.

(d)(1) Q-3. Is the payor of a designated distribution described in section 3405(a) or (b) required to withhold income tax from the distribution if the payee's residence address that is provided to the payor is located outside of the United States?

(2) A-3. Unless section 3405(e)(13)(B) (which provides an exception for certain nonresident aliens) applies, if the payee's residence address that is provided to the payor is located outside of the United States, the payor of a designated distribution described in section 3405(a) or (b) is required to withhold income tax from the distribution without regard to the delivery instructions and without regard to any request by the payee to elect no withholding. Withholding would be required, in this case, even if the payee has requested that the distribution be delivered to a financial institution or other person located within the United States.

(e)(1) Q-4. Is the payor of a designated distribution described in section 3405(a) or (b) required to withhold income tax from the distribution if the payee has not provided the payor with the payee's residence address?

(2) A-4. If a payee has not provided the payor of a designated distribution described in section 3405(a) or (b) with the payee's residence address, the payor is required to withhold income tax from the distribution. Such a payee may not elect no withholding under section 3405(a)(2) or (b)(2), and any purported election of no withholding by such a payee is not valid. For purposes of this section, a payee who has provided the payor with an address for the payee's nominee, trustee, or agent without also providing the payee's residence address has not provided a residence address.

(f)(1) Q-5. Do the withholding rules under section 3405(a) and (b) apply to a payee who is to receive a payment or distribution that is subject to the withholding rules that apply to nonresident aliens (or that would be so subject but for a tax treaty)?

(2) A-5. In accordance with section 3405(e)(1)(B)(iii), a designated distribution does not include a distribution of a United States-source payment that is subject to withholding under the rules of sections 1441 through 1446 of the Code (or that would be so subject but for a tax treaty). Therefore, the withholding rules under section 3405(a) and (b) do not apply to such a distribution. For example, section 3405(a) or (b) withholding would not apply to a pension or other deferred compensation plan distribution to be made to a payee who is a nonresident alien (or other individual payee who is presumed to be a foreign person under the presumption rules of § 1.1441-1(b)(3)). In such a case, withholding under the rules of section 1441, rather than under the rules of section 3405(a) or (b), would apply to such a distribution.

(g)(1) Q-6. What is the applicability date of this section?

(2) A-6. This section applies with respect to payments and distributions made on or after January 1, 2026. However, taxpayers may apply it to earlier payments and distributions.