26 U.S.C. § 3405 : US Code - Section 3405: Special rules for pensions, annuities, and certain other deferred income

Search 26 U.S.C. § 3405 : US Code - Section 3405: Special rules for pensions, annuities, and certain other deferred income

(a) Periodic payments
(1) Withholding as if payment were wages
The payor of any periodic payment (as defined in subsection
(e)(2)) shall withhold from such payment the amount which would
be required to be withheld from such payment if such payment were
a payment of wages by an employer to an employee for the
appropriate payroll period.
(2) Election of no withholding
An individual may elect to have paragraph (1) not apply with
respect to periodic payments made to such individual. Such an
election shall remain in effect until revoked by such individual.
(3) When election takes effect
Any election under this subsection (and any revocation of such
an election) shall take effect as provided by subsection (f)(3)
of section 3402 for withholding exemption certificates.
(4) Amount withheld where no withholding exemption certificate in
effect
In the case of any payment with respect to which a withholding
exemption certificate is not in effect, the amount withheld under
paragraph (1) shall be determined by treating the payee as a
married individual claiming 3 withholding exemptions.
(b) Nonperiodic distribution
(1) Withholding
The payor of any nonperiodic distribution (as defined in
subsection (e)(3)) shall withhold from such distribution an
amount equal to 10 percent of such distribution.
(2) Election of no withholding
(A) In general
An individual may elect not to have paragraph (1) apply with
respect to any nonperiodic distribution.
(B) Scope of election
An election under subparagraph (A) -
(i) except as provided in clause (ii), shall be on a
distribution-by-distribution basis, or
(ii) to the extent provided in regulations, may apply to
subsequent nonperiodic distributions made by the payor to the
payee under the same arrangement.
(c) Eligible rollover distributions
(1) In general
In the case of any designated distribution which is an eligible
rollover distribution -
(A) subsections (a) and (b) shall not apply, and
(B) the payor of such distribution shall withhold from such
distribution an amount equal to 20 percent of such
distribution.
(2) Exception
Paragraph (1)(B) shall not apply to any distribution if the
distributee elects under section 401(a)(31)(A) to have such
distribution paid directly to an eligible retirement plan.
(3) Eligible rollover distribution
For purposes of this subsection, the term "eligible rollover
distribution" has the meaning given such term by section
402(f)(2)(A).
(d) Liability for withholding
(1) In general
Except as provided in paragraph (2), the payor of a designated
distribution (as defined in subsection (e)(1)) shall withhold,
and be liable for, payment of the tax required to be withheld
under this section.
(2) Plan administrator liable in certain cases
(A) In general
In the case of any plan to which this paragraph applies,
paragraph (1) shall not apply and the plan administrator shall
withhold, and be liable for, payment of the tax unless the plan
administrator -
(i) directs the payor to withhold such tax, and
(ii) provides the payor with such information as the
Secretary may require by regulations.
(B) Plans to which paragraph applies
This paragraph applies to any plan described in, or which at
any time has been determined to be described in -
(i) section 401(a),
(ii) section 403(a),
(iii) section 301(d) of the Tax Reduction Act of 1975, or
(iv) section 457(b) and which is maintained by an eligible
employer described in section 457(e)(1)(A).
(e) Definitions and special rules
For purposes of this section -
(1) Designated distribution
(A) In general
Except as provided in subparagraph (B), the term "designated
distribution" means any distribution or payment from or under -

(i) an employer deferred compensation plan,
(ii) an individual retirement plan (as defined in section
7701(a)(37)), or
(iii) a commercial annuity.
(B) Exceptions
The term "designated distribution" shall not include -
(i) any amount which is wages without regard to this
section,
(ii) the portion of a distribution or payment which it is
reasonable to believe is not includible in gross income, and
(iii) any amount which is subject to withholding under
subchapter A of chapter 3 (relating to withholding of tax on
nonresident aliens and foreign corporations) by the person
paying such amount or which would be so subject but for a tax
treaty, or
(iv) any distribution described in section 404(k)(2).
For purposes of clause (ii), any distribution or payment from
or under an individual retirement plan (other than a Roth IRA)
shall be treated as includible in gross income.
(2) Periodic payment
The term "periodic payment" means a designated distribution
which is an annuity or similar periodic payment.
(3) Nonperiodic distribution
The term "nonperiodic distribution" means any designated
distribution which is not a periodic payment.
[(4) Repealed. Pub. L. 102-318, title V, Sec. 521(b)(38), July 3,
1992, 106 Stat. 312]
(5) Employer deferred compensation plan
The term "employer deferred compensation plan" means any
pension, annuity, profit-sharing, or stock bonus plan or other
plan deferring the receipt of compensation.
(6) Commercial annuity
The term "commercial annuity" means an annuity, endowment, or
life insurance contract issued by an insurance company licensed
to do business under the laws of any State.
(7) Plan administrator
The term "plan administrator" has the meaning given such term
by section 414(g).
(8) Maximum amount withheld
The maximum amount to be withheld under this section on any
designated distribution shall not exceed the sum of the amount of
money and the fair market value of other property (other than
securities of the employer corporation) received in the
distribution. No amount shall be required to be withheld under
this section in the case of any designated distribution which
consists only of securities of the employer corporation and cash
(not in excess of $200) in lieu of financial shares. For purposes
of this paragraph, the term "securities of the employer
corporation" has the meaning given such term by section
402(e)(4)(E).
(9) Separate arrangements to be treated separately
If the payor has more than 1 arrangement under which designated
distributions may be made to any individual, each such
arrangement shall be treated separately.
(10) Time and manner of election
(A) In general
Any election and any revocation under this section shall be
made at such time and in such manner as the Secretary shall
prescribe.
(B) Payor required to notify payee of rights to elect
(i) Periodic payments
The payor of any periodic payment -
(I) shall transmit to the payee notice of the right to
make an election under subsection (a) not earlier than 6
months before the first of such payments and not later than
when making the first of such payments,
(II) if such a notice is not transmitted under subclause
(I) when making such first payment, shall transmit such a
notice when making such first payment, and
(III) shall transmit to payees, not less frequently than
once each calendar year, notice of their rights to make
elections under subsection (a) and to revoke such
elections.
(ii) Nonperiodic distributions
The payor of any nonperiodic distribution shall transmit to
the payee notice of the right to make any election provided
in subsection (b) at the time of the distribution (or at such
earlier time as may be provided in regulations).
(iii) Notice
Any notice transmitted pursuant to this subparagraph shall
be in such form and contain such information as the Secretary
shall prescribe.
(11) Withholding includes deduction
The terms "withholding", "withhold", and "withheld" include
"deducting", "deduct", and "deducted".
(12) Failure to provide correct TIN
If -
(A) a payee fails to furnish his TIN to the payor in the
manner required by the Secretary, or
(B) the Secretary notifies the payor before any payment or
distribution that the TIN furnished by the payee is incorrect,
no election under subsection (a)(2) or (b)(2) shall be treated as
in effect and subsection (a)(4) shall not apply to such payee.
(13) Election may not be made with respect to certain payments
outside the United States or its possessions
(A) In general
Except as provided in subparagraph (B), in the case of any
periodic payment or nonperiodic distribution which is to be
delivered outside of the United States and any possession of
the United States, no election may be made under subsection
(a)(2) or (b)(2) with respect to such payment.
(B) Exception
Subparagraph (A) shall not apply if the recipient certifies
to the payor, in such manner as the Secretary may prescribe,
that such person is not -
(i) a United States citizen or a resident alien of the
United States, or
(ii) an individual to whom section 877 applies.
(f) Withholding to be treated as wage withholding under section
3402 for other purposes
For purposes of this chapter (and so much of subtitle F as
relates to this chapter) -
(1) any designated distribution (whether or not an election
under this section applies to such distribution) shall be treated
as if it were wages paid by an employer to an employee with
respect to which there has been withholding under section 3402,
and
(2) in the case of any designated distribution not subject to
withholding under this section by reason of an election under
this section, the amount withheld shall be treated as zero.