ABA Comments to IRS re: Interim Guidance on Income Tax Withholding from Retirement and Annuity Distributions

Internal Revenue Service
CC:PA:LPD:PR (Notice 2020-3)
Room 5203
Post Office Box 7604
Ben Franklin Station
Washington, DC 20224

Dear Sir or Madam:

On behalf of its members, the American Bankers Association (ABA) is pleased to submit the following requested comments with respect to Notice 2020-3; Interim Guidance on Income Tax Withholding from Retirement and Annuity Distributions. We appreciate the efforts of the Internal Revenue Service (IRS) and Department of the Treasury in issuing significant guidance related to the Tax Cuts and Jobs Act (TCJA) and the related operational implications. Our members have submitted the following comments for your consideration.

• The 2020 default rate of tax withholding under IRC Sec. 3405(a) – married claiming three withholding allowances -- is appropriate for calendar years after 2020 only if it will be adjusted for cost-of-living increases each year using the same formula as the payroll withholding tables in IRS Publication 15-T.
• The effective date of any new default tax withholding rate should be a January 1st at least two full years after the end of the 2020 calendar year (or a January 1st at least two full years after the end of the calendar year for which Form W-4P is revised to mirror Form W-4, if later). This would give payers enough time to design, program, build, test, debug, and implement any necessary systemic modifications. At a minimum, payers need at least 18 months to complete these steps. In addition, payers need time to update their participant and beneficiary facing forms and notifications, internal policies and procedures, training programs, and quality assurance protocols.
• Any new default tax withholding rate on periodic pension and annuity payments should apply prospectively only.
• A midyear effective date should be avoided for any new default tax withholding rate on periodic pension and annuity payments.
• A midyear implementation deadline should be avoided for any revised version of Form W-4P that reflects changes made to Form W-4 in light of the Tax Cuts and Jobs Act, as described in section II of Notice 2020-3.
• We agree that the 2020 Publication 15-T withholding tables and computational procedures applicable to the 2019 and earlier versions of Form W-4 should also be used for periodic pension and annuity payments during calendar year 2020, as described in section III of Notice 2020-3.
• The Publication 15-T withholding tables and computational procedures, as updated for cost-of-living increases, should also be used for periodic pension and annuity payments during calendar years after 2020, as described in sections IV and V of Notice 2020-3.

Thank you for your consideration. Please do not hesitate to contact us with questions or comments.

Sincerely,

John P. Kinsella