Pension Withholding Guide

Which Retirement Payments Use Form W-4P and Which Use Form W-4R?

The form depends on how the money is paid, not on the type of account. Form W-4P is for periodic payments: pension, annuity (including commercial annuities), profit-sharing, stock bonus plan or IRA payments made in installments at regular intervals, such as monthly or quarterly, over a period of more than one year. Form W-4R is for nonperiodic payments and eligible rollover distributions. The 2026 Form W-4P says IRA distributions payable on demand are nonperiodic, and that a lump-sum pension payment is an eligible rollover distribution, so both use Form W-4R.

Required minimum distributions and hardship distributions are not eligible rollover distributions (Form W-4R lists them), so they fall under the nonperiodic 10% rule rather than the 20% rule, unless they are paid as periodic installments.

How Does a Pension Payer Figure Withholding?

Payers use Worksheet 1B in IRS Publication 15-T, the "Payer's Worksheet for Figuring Withholding From Periodic Pension or Annuity Payments." For a 2022 or later Form W-4P, the 2026 worksheet works like this:

• Annualize: the taxable payment times the number of payments per year.
• Adjust: add Step 4(a) other income, then subtract Step 4(b) deductions and $12,900 if you checked married filing jointly, or $8,600 for any other status. The result is the Adjusted Annual Payment Amount.
• Apply the schedule: run that amount through the STANDARD withholding rate schedule for your filing status. Publication 15-T says to use the STANDARD schedules for a Form W-4P from any year; the Step 2 checkbox schedules on Form W-4 do not apply to pensions.
• Subtract credits: take away the Step 3 amount, not below zero.
• Per payment: divide by the number of payments and add any Step 4(c) extra withholding.

The STANDARD schedules start taxing at $7,500 (single or married filing separately), $19,300 (married filing jointly) and $15,550 (head of household) of Adjusted Annual Payment Amount for 2026. Add back the $8,600 or $12,900 and you get the 2026 standard deduction: $16,100, $32,200 and $24,150. A single retiree with a $3,000 monthly pension and no other entries has $178.33 withheld from each payment: $36,000 minus $8,600 is $27,400, and $1,240 plus 12% of the $7,500 above $19,900 is $2,140 a year.

What Happens If You Never File a Form W-4P?

The payer withholds as if your filing status is single with no adjustments in Steps 2 through 4. The same default applies if you do not give the payer your Social Security number or the IRS notifies the payer that the number is wrong. The exception is payments that began before 2022: if you never furnished a Form W-4P when they began, Publication 15-T (2026) says the payer must continue to withhold as if you were married claiming three withholding allowances, unless you furnish a Form W-4P requesting a change.

For a married couple living on one pension, the single default usually over-withholds. On a $3,000 monthly pension, the single default withholds $178.33 a month, while a W-4P marked married filing jointly withholds $31.67 ($36,000 minus $12,900 is $23,100, and 10% of the $3,800 above $19,300 is $380 a year). That is $1,759.92 a year more withheld than the pension alone calls for, which comes back as a refund if there is no other income to cover. For payments that began before 2026, your current election, or the default you were under, stays in effect until you submit a new form.

How Do You Fill Out Form W-4P Step by Step?

Complete a separate Form W-4P for each pension or annuity, and fill in only the steps that apply.

• Step 1(c): your expected filing status. Single and married filing separately share one schedule; married filing jointly includes a qualifying surviving spouse.
• Step 2: only if you have a job, more than one pension or annuity, or a joint-filing spouse with a job or pension. See the next section.
• Step 3: if your total income will be $200,000 or less ($400,000 or less married filing jointly), $2,200 for each qualifying child under 17 and $500 for each other dependent, plus other credits such as the foreign tax credit.
• Step 4(a): other income that has no withholding of its own, such as interest, dividends and taxable Social Security, if you want this pension to cover its tax. Do not include job or pension income here.
• Step 4(b): deductions beyond the basic standard deduction, from the Deductions Worksheet on page 4 of the form. For retirees that usually means the additional standard deduction for age 65 or older and the $6,000 senior deduction (age 65 or older, income limits apply), which is a below-the-line deduction on Schedule 1-A, plus itemized deductions if you itemize.
• Step 4(c): a flat extra amount to withhold from each payment.

The form's caution is easy to miss: if you (or a joint-filing spouse) have a job, do not complete Steps 3 through 4(b) on any Form W-4P; put them on the Form W-4 for the job. If no one works, complete Steps 3 through 4(b) only on the Form W-4P for the pension that pays the most each year, and leave them blank on the others.

How Do You Handle a Job or a Second Pension?

Each payer withholds as though its payment were your only income, so two incomes can each start in the lowest brackets and together fall short. Step 2(b) fixes this on the form for the payment that should carry the extra withholding:

• Step 2(b)(i): total taxable annual pay from all jobs (yours and a joint-filing spouse's), plus any Step 4(a) income on the job's Form W-4, minus its Step 4(b) deductions.
• Step 2(b)(ii): total annual taxable payments from pensions and annuities that pay less than this one.
• Step 2(b)(iii): the sum of (i) and (ii).

The form's examples show the pattern. Taylor, single, has a $50,000 pension and a $25,000 job: enter $25,000 in 2(b)(i) and (iii). Casey has a $50,000 pension and a smaller $25,000 pension: enter $25,000 in 2(b)(ii) and (iii) on the $50,000 pension's form. Sam's other pension pays $75,000, more than this one, so Sam leaves Step 2 blank here and completes it on the larger pension's form instead.

With a Step 2(b)(iii) amount, Worksheet 1B figures withholding twice: once on the other income alone (minus $8,600 or $12,900) and once on the other income plus this pension. It withholds the difference. For Casey, with $4,000 a month from the larger pension, that is $7,230 minus $890, or $6,340 a year: $528.33 a payment, enough to tax the pension at the 12% and 22% rates the combined income reaches. The IRS Tax Withholding Estimator is the alternative in Step 2(a), and the form says to use it if you have self-employment income.

How Much Is Withheld From an IRA Withdrawal or Other Nonperiodic Payment?

The payer must withhold 10% of the taxable amount of a nonperiodic payment unless you enter a different rate on Form W-4R line 2. You can enter any whole number from 0 to 100. If you do not give the payer a Form W-4R, do not provide your Social Security number, or the IRS says the number is wrong, the payer withholds 10% and cannot honor a request for less.

A $20,000 IRA withdrawal has $2,000 withheld at the default rate. Whether that is enough depends on your bracket. In the form's Example 1, a single filer with $70,000 of other income is in the 22% bracket before and after the withdrawal, so the federal tax on it is about $4,400, more than twice the default withholding. Your election generally applies to future payments from the same plan or IRA until you change it.

Why Is 20% Withheld From a 401(k) Cash-Out?

Under IRC 3405(c), an eligible rollover distribution from a qualified plan such as a 401(k), a governmental 457(b) plan or a 403(b) tax-sheltered annuity is subject to mandatory withholding at 20% of the taxable amount when it is paid to you, even if you intend to roll it over. You cannot choose less than 20% or no withholding. You can choose more on Form W-4R line 2; the form says not to file a W-4R for a rollover distribution unless you want more than 20%.

The 20% creates a trap for indirect rollovers. IRS Topic 413 explains that if you take the cash and roll it over within 60 days, you must add funds from other sources equal to the amount withheld to defer tax on the whole distribution. Take a $50,000 cash-out, receive $40,000, and roll over only the $40,000: the other $10,000 is a taxable distribution, possibly with the 10% additional tax if you are under 59 and a half. A direct rollover, where the plan pays the IRA or new plan directly, has no mandatory withholding at all.

How Do You Choose a Rate on Form W-4R?

The 2026 Form W-4R prints Marginal Rate Tables by filing status. They work on total income, so the standard deduction is built in: a single filer's 10% rate starts at $16,100 of total income, 12% at $28,500, 22% at $66,500 and 24% at $121,800. The form's method:

• Find the rate for your total income without the payment, then the rate for your total income including the payment.
• If the two rates match, enter that rate.
• If they differ, multiply the part of the payment in each bracket by that bracket's rate, add the results, divide by the payment, and round up to the next whole number.

The form's Example 2: a single filer with $60,000 of other income takes a $20,000 payment. $6,500 falls in the 12% bracket and $13,500 in the 22% bracket, so the tax is $780 plus $2,970, or $3,750. That is 18.75% of the payment, so the filer enters 19. The tables assume the tax on your other income is already covered by other withholding or estimated payments; if it is not, enter a higher rate. The simpler alternative, using the rate for your total income including the payment, may over-withhold.

Can You Opt Out of Withholding on Retirement Payments?

For periodic payments, check the No withholding box on Form W-4P and complete only Steps 1(a), 1(b) and 5. For nonperiodic payments, enter 0 on Form W-4R line 2. U.S. citizens and resident aliens generally cannot elect no withholding on periodic payments delivered outside the United States and its territories, or less than 10% on nonperiodic payments delivered there. Eligible rollover distributions paid to you can never be exempt; use a direct rollover instead.

Opting out does not reduce your tax. The tax is due with your return, and if too little was paid during the year through withholding and estimated payments you may owe an underpayment penalty. The Estimated Tax Penalty Calculator shows the cost.

Practitioner Insight (LMN Tax Inc.)

Real-World Scenarios

When the Rules Differ

• Old Form W-4P elections. If your payments began before 2022 and you never filed a redesigned form, the payer may still use your old allowances; Worksheet 1B subtracts $4,300 per allowance for 2026 in that case.
• Nonresident aliens and foreign estates. Neither form applies. See IRS Publication 515 and any tax treaty.
• Roth distributions. Withholding applies only to the taxable amount, so a qualified Roth distribution generally has nothing to withhold.
• After-tax contributions. If part of each pension payment is a tax-free return of your contributions, withholding is figured on the taxable part only. The Pension and Annuity Tax Calculator estimates that split.
• State income tax. States have their own pension withholding rules and forms, and some do not tax pensions at all.
• Social Security benefits. These are not covered by Form W-4P or W-4R. Voluntary withholding on benefits uses Form W-4V, or you can cover the tax through Step 4(a) of a pension's W-4P.

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