How Many Allowances Should I Claim on Form W-4P?

Form W-4P, Withholding Certificate for Periodic Pension or Annuity Payments, is a form you provide to your pension or annuity payer. It instructs the payer on the correct amount of federal income tax to withhold from your payments. Federal income tax withholding applies to the taxable portion of periodic payments, which are those made at regular intervals like monthly or quarterly over more than one year.

How Your Withholding Is Determined

The goal of accurately completing Form W-4P is to have the total tax withheld during the year closely match your actual tax liability. This helps you avoid either a large tax bill or a significant refund when you file your income tax return.

If you do not provide a Form W-4P to your payer, they are required to follow a default withholding rule. For payments that began after 2021, the payer will withhold tax as if you are a single filer with no adjustments. This default may not be appropriate for your financial situation and could result in too much or too little tax being withheld.

Information Needed to Complete Form W-4P

Before you complete Form W-4P, you need to gather several pieces of financial information. You will need to know your expected filing status, such as single, married filing jointly, or head of household.

You must also estimate your total income from all sources for the upcoming year, including the pension payments, any income your spouse earns, and other income from part-time work or investments. Details for any dependents you plan to claim are also necessary, along with any tax credits and deductions you anticipate.

Understanding the Steps on Form W-4P

To ensure the correct amount of tax is withheld, you must complete a series of steps on the form. For more complex tax situations, the IRS recommends using its online Tax Withholding Estimator.

• Step 1: Personal Information. Enter your name, address, Social Security number, and filing status. Your filing status helps determine the standard deduction and tax rates used to calculate your withholding.
• Step 2: Income from Multiple Sources. This step is for those who have more than one pension, a job, or a spouse who also works. You can use the worksheet included in the form’s instructions or the IRS online estimator to calculate an amount to include here.
• Step 3: Claim Dependents and Other Credits. If you have dependents, you will multiply the number of qualifying children and other dependents by the credit amounts to calculate a total. You can also add other tax credits you expect to claim.
• Step 4: Other Adjustments. This step allows for further fine-tuning. You can account for other taxable income not from jobs or pensions, claim deductions you expect to take, or request that an extra amount of tax be withheld from each payment.
• Step 5: Sign and Submit. After completing the relevant steps, sign and date the form. The completed Form W-4P should be submitted directly to your pension or annuity payer, not to the IRS. The payer will use this information to adjust the federal income tax withholding on your future payments.