Significant tax changes are coming for pension agencies – is your organization prepared?
The Internal Revenue Service (IRS) recently announced changes for its redesigned W-4P and new form, W-4R. These forms affect withholdings for periodic pension or annuity payments. For pension service agencies, these changes directly impact how these funds are collected, reported, and distributed to members. Failing to act on compliance could spell negative outcomes.
We’ve broken down the key changes, implications, and what your organization and software vendor should do now to comply with the new regulation. Catch the key details you need to know here.
What’s New About W-4P and W-4R
The new W-4P form is now used only to request withholding on periodic pension or annuity payments. Previously, Form W-4P was also used to request additional withholding on nonperiodic payments and eligible rollover distributions. As of next year, additional withholding on nonperiodic payments will be completed through the new W-4R.
The good news is that, while the redesigned W-4P and new W-4R forms are currently available, the enforcement requirement is not until January 1, 2023. This gap before enforcement gives pension agencies time to work with their software vendors on retooling their systems to ensure compliance.
What Does the W-4 Changes Impact?
There are several implications for pension agencies. Changes in the calculation for pension withholdings are only the tip of the iceberg. There are additional changes that both agencies and their software vendors need to prepare for, including:
- Retirement application
- Benefit calculation
- Payment account
- Monthly payroll
- Supplemental payments/calendar year payments
- New tax rates
Some of these changes, such as the form and data collection, are relatively minor. However, the calculation of the new tax rates could require significant time investment from your legal, tax, and development teams. Please get in touch with your legal team if you are unsure how these tax changes impact you.
What Organizations Should Do to Comply
Compliance requirements do not begin until the start of next year – but working toward compliance should begin now. The earlier your organization starts, the more time it allows you to develop, test, and refine your system. The volume of changes could be high and necessitate strong planning and coordination between departments. Sagitec estimates that 200-2,000 hours are needed to ensure compliance with the new regulation. These hours needed to ensure compliance depends on the size and scope of your organization.
The changes go further than your enterprise software. Your members might have questions as well. Include call center training so that front-line facing personnel understand the changes and can communicate them to members. Conducting reviews with your legal and tax teams can help check for compliance and prevent errors before they arise.
How Sagitec can Help
Sagitec has helped pension agencies modernize and adapt to regulatory changes for over 15 years. Our pension software solution, Neospin™, provides comprehensive, cloud-based functionality that can be tailored to suit distinct needs. We provide shared base libraries that can be modified for each customer while developing, testing, and deploying applications. In addition to providing lower operating costs and staving off technical obsolescence, Neospin can help your organization quickly respond to complex and changing legal requirements – such as the W-4P changes. For more information on how we can help, contact us or click the link below to download one of our free case studies.
The upcoming W-4P changes create significant legal, tax, and software development changes for your organization. The enforcement date is January 1, 2023, giving pension administrators time to adjust. If compliance is causing pain in your organization, learn how Sagitec’s solutions can help drive your vision into action.