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May 29, 2024
2024-1089

Arizona law extends voluntary withholding option to more pension plan participants

On March 29, 2024, Arizona Governor Katie Hobbs signed into law SB 1358, which allows participants of most qualified pension and annuity plans to request voluntary state income tax withholding from nonperiodic and lump-sum distributions provided the payments are included in Arizona gross income. Prior law allowed voluntary income tax withholding only from regularly-scheduled payments from qualified pension and annuity plans.

The law also clarifies the types of qualified pension and annuity plans for which the voluntary income tax withholding option applies.

Although the law was set to take effect 90 days after the close of the 2024 Arizona legislative session, the Arizona Department of Revenue (DOR) implemented the law changes in April 2024. (DOR response to EY email, Form A4-P, published January 1, 2024, revised April 2024.)

Voluntary state income tax withholding under the new law

Qualified retirement plan participants can provide Form A-4P or its electronic equivalent to request that the pension, annuity or retirement plan administrator (payor) withhold Arizona state income tax from their periodic, nonperiodic or lump-sum retirement account distributions. Once submitted, Form A-4P remains in effect until the plan participant notifies the payor to change or terminate state income tax withholding.

The option to request voluntary withholding applies to payments or distributions from pensions, annuities or a retirement account to the extent the payment or distribution is included in the plan participant's Arizona gross income.

"Pension" means either of the following:

  • A defined benefit plan authorized under the Internal Revenue Code (IRC) paid to an individual
  • Periodic, fixed-amount retirement payments made by the US military, the US civil service or a state or local government or a private employer to former employees and surviving spouses of former employees for prior services performed

"Annuity" means either of the following:

  • Payments to an individual under an annuity authorized under the IRC
  • Specified income payable at stated intervals to an individual for a fixed or contingent period, often for that individual's life

"Retirement Account" includes:

  • Qualified retirement plans under IRC Sections 401, 403 and 457
  • An individual retirement account under IRC Section 408 including a simplified employee pension fund as defined in IRC 408(k) and a simple retirement account under IRC Section 408(p)

The voluntary income tax withholding option does not apply to Roth Individual Retirement Account distributions under IRC Sections 408(a) and 408(b) and similar plans not included in Arizona gross income.

Ernst & Young LLP observations

Pension, annuity and retirement plan administrators should consider notifying payment recipients of the expanded conditions under which voluntary Arizona income tax withholding can be requested along with a copy of, or a link to, the revised Form A-4P.

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Contact Information

For additional information concerning this Alert, please contact:

Workforce Tax Services - Employment Tax Advisory Services

Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor
 

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