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Pensions and Annuities: Withholding and Estimated Tax (2026 IRS Guide)

This guide covers “Pensions and Annuities” within withholding and estimated tax. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 505 (2026), Tax Withholding and Estimated Tax, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Pensions and Annuities

Income tax will usually be withheld from your pension or annuity distributions unless you choose not to have it withheld. This rule applies to distributions from:

  • An IRA;

  • A life insurance company under an endowment, annuity, or life insurance contract;

  • A pension, annuity, or profit-sharing plan;

  • A stock bonus plan; and

  • Any other plan that defers the time you receive compensation.

The amount withheld depends on whether you receive payments spread out over more than 1 year (periodic payments), within 1 year (nonperiodic payments), or as an eligible rollover distribution (ERD). Income tax withholding from an ERD is mandatory. ERDs are discussed under Eligible Rollover Distributions, later.

Nontaxable part.

The part of your pension or annuity that is a return of your investment in your retirement plan (the amount you paid into the plan or its cost to you) isn’t taxable. Income tax won’t be withheld from the part of your pension or annuity that isn’t taxable. The tax withheld will be figured on, and can’t be more than, the taxable part.

For information about figuring the part of your pension or annuity that isn’t taxable, see Pub. 575.

Periodic Payments

Withholding from periodic payments of a pension or annuity is figured similarly to withholding from certain salaries and wages. To tell the payer of your pension or annuity how much you want withheld, fill out Form W-4P or a similar form provided by the payer. Follow instructions for Form W-4P and the rules discussed under Form W-4P, earlier, to fill out your 2026 Form W-4P.

Note:

Use Form W-4, not Form W-4P, if you receive any of the following.

  • Military retirement pay.

  • Payments from certain nonqualified deferred compensation plans. These are employer plans that pay part of your compensation at a later time but are not tax-qualified deferred compensation plans. See Nonqualified Deferred Compensation and Section 457 Plans in Pub. 957.

Withholding rules.

The withholding rules for pensions and annuities differ from those for salaries and wages in the following ways.

  • If a 2026 Form W-4P is used for withholding for payments beginning in 2026, and you don’t fill out a withholding certificate, tax will be withheld as if your filing status is Single with no adjustments made in Steps 2 through 4.

  • You can choose not to have tax withheld, regardless of how much tax you owed last year or expect to owe this year. You don’t have to qualify for exemption. See Choosing Not To Have Income Tax Withheld, later.

  • If a 2026 Form W-4P is used for withholding for payments beginning in 2026, and you don’t give the payer your SSN in the required manner or the IRS notifies the payer before any payment or distribution is made that you gave an incorrect SSN, tax will be withheld as if your filing status is Single with no adjustments in Steps 2 through 4. For payments that began before 2026, your current withholding election (or your default rate) remains in effect unless you submit a new Form W-4P.

Effective date of withholding certificate.

If you give your withholding certificate (Form W-4P or a similar form) to the payer on or before the date your payments start, it will be put into effect by the first payment made more than 30 days after you submit the certificate.

If you give the payer your certificate after your payments start, it will be put into effect with the first payment, which is at least 30 days after you submit it. However, the payer can elect to put it into effect earlier.

Nonperiodic Payments

Tax will be withheld at a flat 10% rate on any nonperiodic payments you receive, unless you choose a different withholding rate.

Use Form W-4R, line 2, to choose a withholding rate other than the default 10% rate. You can choose a rate between 0% and 100%. You can choose to have no federal income tax withheld by entering “-0-” on line 2. Generally, you can’t choose less than 10% for payments to be delivered outside of the United States and its territories. If you want to revoke a choice not to have tax withheld, see Choosing Not To Have Income Tax Withheld, later.

.You may need to use Form W-4R to ask for additional withholding. If you don’t have enough tax withheld, you may need to pay estimated tax, as explained in chapter 2. .

Eligible Rollover Distributions

Distributions you receive from qualified retirement plans (for example, 401(k) plans and section 457(b) plans maintained by a governmental employer) or tax-sheltered annuities that are eligible to be rolled over to an IRA or qualified plan are subject to a 20% default rate of withholding on the taxable amount of the distribution. You can’t choose withholding at a rate of less than 20% (including “-0-”). Note that the default rate of withholding may be too low for your tax situation. You may choose to enter a rate higher than 20% on Form W-4R, line 2. Don’t give Form W-4R to your payer unless you want more than 20% withheld.

Note that the following payments are not eligible rollover distributions for purposes of these withholding rules:

  • Qualifying “hardship” distributions;

  • Distributions required by federal law, such as required minimum distributions;

  • Generally, distributions from a pension-linked emergency savings account;

  • Eligible distributions to a domestic abuse victim;

  • Qualified disaster recovery distributions;

  • Qualified birth or adoption distributions; and

  • Emergency personal expense distributions.

Choosing Not To Have Income Tax Withheld

For payments other than eligible rollover distributions, you can choose not to have income tax withheld. The payer will tell you how to make this choice. If you use Form W-4R, enter “-0-” on line 2 to choose not to have withholding. This choice will remain in effect until you decide you want withholding and inform the payer. See Revoking a choice not to have tax withheld, later.

The payer must withhold if either of the following applies.

  • You don’t give the payer your SSN in the required manner.

  • The IRS notifies the payer, before any payment or distribution is made, that you gave it an incorrect SSN.

If you don’t have any income tax withheld from your pension or annuity, or if you don’t have enough withheld, you may have to pay estimated tax. See chapter 2.

If you don’t pay enough tax, either through estimated tax or withholding, or a combination of both, you may have to pay a penalty.

Payments delivered outside the United States.

You must generally have tax withheld from pension or annuity benefits delivered outside the United States. However, if you are a U.S. citizen or resident alien, you can choose not to have tax withheld if you give the payer of the benefits a home address in the United States or in a U.S. territory. The payer must withhold tax if you provide a U.S. address for a nominee, trustee, or agent to whom the benefits are to be delivered, but don’t provide your own home address in the United States or in a U.S. territory.

Notice required of payer.

The payer of your pension or annuity must send you a notice telling you about your right to choose not to have tax withheld.

Generally, the payer won’t send a notice to you if it is reasonable to believe that the entire amount you will be paid isn’t taxable.

Revoking a choice not to have tax withheld.

The payer of your pension or annuity will tell you how to revoke your choice not to have income tax withheld from periodic or nonperiodic payments. You can tell the payer exactly how much to withhold by completing a new Form W-4P for periodic payments or Form W-4R for nonperiodic payments.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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