Effective January 1, 2018, payers that maintain an office or transact business in Connecticut and make distributions of taxable pensions, annuities or other nonpayroll amounts to a Connecticut resident individual are required to deduct and withhold income tax from such distributions. (Special notice 17-5, Connecticut Department of Revenue Services; HB 7312, Public Act 17-147.)

Taxable pension or annuity distributions subject to mandatory withholding include distributions from the following:

— an employer pension;
— an annuity;
— a profit sharing plan;
— a stock bonus;
— a deferred compensation plan;
— an individual retirement arrangement;
— an endowment; and
— a life insurance contract.

Prior to January 1, 2018, a payer of pension or annuity distributions was required to deduct and withhold Connecticut income tax from pension and annuity distributions only when the resident individual recipient requested that income tax be deducted and withheld. If the recipient did not make such request, the payer had no obligation to withhold income tax from such payments.

Affected businesses are instructed by the Connecticut Department of Revenue Services to withhold state income tax using the same method that Connecticut employers use to determine the amount to withhold from wages. The 2018 income tax withholding tables and withholding calculation rules are available on the Department's website.

Form CT-W4P, Withholding Certificate for Pension or Annuity Payments, is also revised for 2018 to reflect these new requirements. Businesses are required to provide the revised 2018 Form CT-W4P to all Connecticut resident individual recipients of pension or annuity payments for their completion before January 1, 2018, even if the payment recipient has already filled out the form for previous years.

Businesses are instructed to withhold at a rate of 6.99% if the payment recipient fails to submit the 2018 Form CT-W4P or if a lump sum distribution is made of the entire account balance, unless any portion of the lump sum distribution was previously subject to tax, or the lump sum distribution is a rollover as a trustee-to-trustee transfer.

Registration may be required for nonpayroll withholding

Businesses that are currently withholding from these types of payments should already be registered for nonpayroll withholding with the Department. Payers that are already registered with the Department, but not registered specifically for nonpayroll withholding, must add nonpayroll withholding to their existing registration before January 1, 2018 through the Department's Taxpayer Service Center. Businesses not registered at all with the Department must electronically complete Form REG-1, Business Taxes Registration Application, before January 1, 2018.

———————————————

———————————————
ATTACHMENT

EY Payroll News Flash