Section 4328-1 - Withholding on Pensions, Annuities and Certain Other Deferred Income(a) In General. Withholding of income tax is required under Section 13028 of the code from the taxable portion (as described in Chapters 3 and 5, Part 10, Division 2 of the Revenue and Taxation Code) of payments of pensions, annuities and other deferred income (as described in Section 3405 of the Internal Revenue Code) made on or after July 1, 1986, to residents of this state, as if such payment were a payment of wages by an employer to an employee for the appropriate period unless the individual elects not to have the tax withheld. In determining a payee's state of residence, for purposes of applying these rules, a payer may rely on the most recent address on file for the payee which is contained in the business records which payer deems to be most accurate. At payer's election, a separate reporting number may be used for a payee's pension and payroll withholding. (1) De minimis exception to withholding. At payer's option, withholding shall not be required with respect to those payments subject to withholding under Section 13028 of the code if the amount to be deducted and withheld is less than ten dollars ($10).(b) Notice and Election Procedures. (1) Election of No Withholding. Withholding is not required on any payment or distribution if the payee elects not to have withholding apply.(A) Periodic payments--payee may elect not to have withholding apply by filing an election with the payer in such form and manner as determined by payer. Such election shall remain in effect until revoked or changed by payee by filing a new state withholding exemption certificate with payer.(B) Nonperiodic Payments--payee may elect not to have withholding apply with respect to any nonperiodic distribution by filing an election with the payer in such form and manner as determined by the payer. An election under this subdivision shall be on a distribution-by-distribution basis unless the payer elects to give such election continuing effect with respect to subsequent nonperiodic distributions made by the payer to the payee.(2) Notice of Right to Elect. The payer is required to provide each payee with notice of the right to elect not to have withholding apply and the right to revoke the election. Notice must be provided by payer to payee not more than six months prior to distribution of the first taxable payment and not later than when making the first taxable payment.(3) Time to Elect or Revoke. Payee has the right to make or revoke an election at any time. (A) Substance of Notice Requirement. (i) Any notice provided to the payee by the payer or plan administrator must contain the following information: (I) Notice of the payee's right to elect not to have withholding apply to any payment or distribution and how to make that election,(II) Notice of the payee's right to change or revoke an election when an election and revocation takes effect.(ii) Use of federal form W-4P, properly modified for state withholding, shall be deemed to be in compliance with state law notice requirements.(4) When Election Takes Effect. (A) Periodic payments--any election under this subdivision (and any change or revocation of such an election) shall take effect with respect to payments made more than 30 days after payer receives such election or revocation, unless the payer elects to make it effective at an earlier date.(B) Nonperiodic distributions--the payee has the right to make or revoke an election at any time prior to the distribution by filing a new state withholding exemption certificate with the payer.(c) Amount of Withholding. (1) In General. Amounts of withholding shall be made pursuant to Section 13028(c) of the code.(2) Maximum Amount of Withholding. Where such distributions subject to withholding under Section 13028 of the code include property other than cash, withholding shall be calculated from the taxable portion of such distribution using the fair market value of such other property distributed. However, the maximum amount of withholding shall not exceed the sum of the amount of money and fair market value of property other than employer securities received in the distribution.(3) Amount Withheld Pursuant to Election. If payee, by reason of an election under Section 3405 of the Internal Revenue Code elects not to have withholding apply, the amount to be withheld shall be zero.(4) Amount Withheld Where No Withholding Exemption Certificate Is in Effect. (A) Periodic distribution--the amount to be withheld shall be determined as follows:(i) Where the payee has filed an election to opt out of federal tax withholding, the payee shall also be treated as having opted out of state tax withholding;(ii) Where the payee has not opted out of federal withholding and has federal tax withholding claiming a specific marital status and number of withholding allowances, state tax withholding will be required and calculated under any one of the methods for tax withholding specified in Section 13028(c) of the code. Where the payer calculates tax withholding using the state wage withholding tables California state tax withholding shall be calculated by using the marital status and number of withholding allowances elected by the payee for federal tax withholding purposes;(iii) Where the payee has not filed an election for federal tax withholding purposes, state tax withholding shall be required and calculated under any one of the three (3) methods for calculating tax withholding specified in Section 13028(c) of the code. However, where the payer calculates California state tax withholding using the state wage withholding tables, the payee shall be treated as claiming the same marital status and number of withholding allowances as under federal tax law.(B) Nonperiodic distributions--the amount to be withheld shall be determined as follows: (i) Where the payee filed an election to opt out of federal tax withholding, the payee shall also be treated as having opted out of state tax withholding;(ii) Where the payee did not file an election to opt out of federal tax withholding, state tax withholding shall be required and calculated under any one of the three (3) methods of withholding specified in Section 13028(c) of the code as elected by payer. Where the payer calculates California state tax withholding using the state wage withholding tables, withholding shall be calculated by treating each nonperiodic distribution as an annual payment and the payee shall be treated as claiming the same marital status and number of withholding allowances as under federal tax law.(5) Withholding of Tax from Pensions and Annuity Payments by Request Under Prior Law. If the recipient of a pension or annuity has previously elected voluntary withholding for purposes of Section 13028 under prior law, and the payer wishes to honor such withholding, the Form DE 4P can be treated by the payer as an election to withhold the flat dollar amount specified on the form if the following requirements are met: (A) The individual is notified by the payer of his or her right to elect out of withholding.(B) The individual is notified that his or her previously filed DE 4P will remain effective unless he or she elects out of withholding or files a new withholding certificate. Once these requirements are met and the individual has not exercised his or her option to terminate the voluntary withholding agreement, the payer must then use the original Form DE 4P to withhold under Section 13028. The amounts withheld should be reported in the same manner as amounts withheld under Section 13028 of the code.
(d) Delay in Application of Withholding Provisions. The director has the authority to delay (but not beyond July 1, 1987) the application of these withholding provisions with respect to any payer or class or payers if the payer can establish that it is impossible to comply with these provisions without undue hardship. If the director determines that a payer cannot comply, and delays application of these withholding provisions to that payer or class of payers, no penalty will be imposed for failure to withhold on payments if the failure occurs before the date to which application is extended or July 1, 1987, whichever comes first, and if a good faith attempt is made to comply.(e) Obligation of Payer. Payer of a distribution described in Section 13028 of the code must withhold and is liable for payment of the tax required to be withheld under this section.(f) Definitions. For purposes of this section: (1) The term "payee" means an individual who is a citizen or resident of the United States and who receives an annuity, pension or payment (as described in Section 3405 of the Internal Revenue Code).(2) The term "payer" means person making a pension, annuity, or other payment (as described in Section 3405 of the Internal Revenue Code), except that, if the person making the payment is acting solely as an agent for another person, the term "payer" shall mean such other person and not the person actually making the payment. For example, if a bank makes an annuity payment only as agent for an employee's trust, the trust shall be deemed to be the "payer." Notwithstanding the preceding two sentences, any person who, under Section 13009(e) of the code would not be required to deduct and withhold the tax under Section 13020 of the code if the annuity payment were remuneration for services shall not be considered a "payer."Cal. Code Regs. Tit. 22, §§ 4328-1
1. New section filed 5-7-87; operative upon filing (Register 87, No. 20).
2. Change without regulatory effect amending subsection (c)(4)(A)(i) filed 9-11-96 pursuant to section 100, title 1, California Code of Regulations (Register 96, No. 37). Note: Authority cited: Sections 305 and 306, Unemployment Insurance Code. Reference: Sections 13028, and 13070, Unemployment Insurance Code.
1. New section filed 5-7-87; operative upon filing (Register 87, No. 20).
2. Change without regulatory effect amending subsection (c)(4)(A)(i) filed 9-11-96 pursuant to section 100, title 1, California Code of Regulations (Register 96, No. 37).