Keeping Up With State Withholding Requirements
It can be challenging to keep up with state laws that affect IRAs, especially state withholding requirements.
The stakes are high for financial organizations that do not apply federal and state withholding on distributions that are subject to the withholding requirements. If your financial organization doesn’t withhold, it could be required to pay the amount that was supposed to be withheld and face IRS and state penalties. While federal withholding requirements can be daunting, state withholding laws can be cumbersome and difficult to administer.
State Withholding Requirements Vary
State withholding requirements vary widely from state to state. For example, some states have mandatory withholding, some have voluntary withholding, and some states require financial organizations to withhold if the IRA owner elects to have state withholding apply. In some cases, state withholding applies only if federal taxes are withheld. And to make it even more confusing, withholding isn’t even an option in certain states, such as those that don’t have state income tax.
In addition to determining whether state withholding applies, your organization must also determine the correct amount to withhold. Some states require you to withhold a specific dollar amount, a certain percentage, or a percentage of the federal withholding amount. A few states exclude certain individuals from state withholding requirements or require different withholding amounts based on the distribution amount.
Gain Control with Ascensus
Our IRAdirect® software is programmed to comply with current state withholding requirements. If you’re one of our Fully-Administered or Self-Administered clients, we’ll do the work for you so you won’t have to search online for state withholding information. We also update our IRA forms and documents to keep up with the constantly changing state withholding requirements. For example, there have been five state withholding changes this year and we’ve adapted our forms for each of these changes. If your organization uses Ascensus forms, you’ll be notified whenever an update is made.
No matter what services we provide to your financial organization, we’ve got you covered.
Remember—it’s your financial organization’s responsibility to stay on top of state withholding requirements. If you’re unsure whether state withholding applies to an IRA distribution, you should check with that state’s department of revenue. Note, however, that some states don’t immediately update their tax forms to reflect new withholding changes. This, along with other issues (such as having a core processing system that isn’t programmed correctly to include state withholding changes), can make it more difficult to follow current withholding requirements.
We’re Here to Help
If you have concerns that your financial organization isn’t compliant with state withholding rules, give us a call. Let’s start the conversation on how we can streamline your administrative process and ensure that your IRA program is fully compliant with federal and state laws. Contact your sales representative or email us at salessupport@ascensus.com.
