The IRS and Minnesota Department of Revenue have established new tax withholding requirements for retirement plans. These changes affect MNDCP withdrawals and pension benefit payments and refunds.
MNDCP - Installment payments & automated required minimum distributions (RMDs)
Participants who have an MNDCP installment payment scheduled to last 10 years or more or an automated RMD payment can no longer choose tax withholding based on a flat dollar amount or percentage. The IRS requires that federal taxes withheld from these payments must now be based on your filing status and adjustments.
In September 2022, MSRS notified participants affected by the change of the opportunity to update their tax withholding election to comply with the new regulation. Included in the mailing was a Notice and an FAQ. If no election was made by December 29, 2022, tax withholding was automatically converted to the IRS default option of single and zero adjustments (regardless of marital status). The conversion did not affect state tax withholding election.
Depending on individual circumstances, the federal tax withholding change may affect future net payment amounts. To change tax withholding from Single and zero adjustments, complete a W-4P form and submit to MSRS. To change state tax withholding, complete a W-4MNP form.
Pension - Monthly benefit payments
Federal tax withholding was automatically converted to the new requirements on December 5, 2022, matching the withholding amount from the existing election. A post-retirement increase letter was sent to benefit recipients in December as notification of the 2023 benefit amount and tax withholding. New 2023 tax tables may impact the net benefit amount.
No action is required unless you want to change federal and/or Minnesota state tax withholding for pension payments. Tax Withholding Certificates are available on the MSRS website.