Choosing Your Tax Withholding Preferences
New Withholding Preferences
In early 2023, the IRS released a revised Form W-4P (Withholding Certificate for Periodic Pension or Annuity Payments) that includes changes to the federal tax withholding elections available. Minimum withholding is no longer calculated and the standard election on your NC Retirement Systems account (Single or Married Filing Separately, Married Filing Jointly or Qualifying Widow(er), Head of Household) applies if you have elected for federal income tax to be withheld from your monthly retirement benefit.
If you previously chose to have a minimum withholding from your benefit payment, you should log in to your ORBIT account and update your tax withholding preferences in Step 4 (c) (Additional Withholding Amount per pay period).
You may update your tax withholding preferences in your ORBIT account. We also have forms and guides available.
Instructions for Federal Income Tax Withholding Preference Certificate
Federal income tax laws require that you complete this form to make your election on Federal income tax withholding from your benefit. The pension payments you receive could be subject to Federal income tax withholding unless you elect not to have withholding apply. Withholding will only apply to the portion of your pension payment that is already included in your income, subject to federal income tax and will be like wage withholding. Thus, there will be no withholding on previously taxed contributions.
- Check box A if you do not want Federal income tax withheld.
- Check box B if you want Federal income tax withheld. If you check box B, you must also indicate Marital Status.
- Check Single or Married Filing Separately if you are not married, or you are a widow/widower that does not meet the qualification to file as a surviving spouse.
- Check Head of Household only if you are unmarried and pay more than 50% of the costs of keeping up a home for yourself and your dependents.
- Check Married Filing Jointly or Qualifying Widow(er) if you are: (1) married, or (2) your spouse died in either of the two preceding tax years and you meet the following requirements: (a) Your home is maintained as the main household of a child or stepchild for whom you can claim an exemption; and you can claim an exemption; and (b) You were entitled to file a joint return with your spouse in the year of your spouse's death.
Steps 2-4 are not required and should only contain non-zero amounts if they apply to you.
If you (and/or your spouse when filing jointly) have income from other job(s) or other pension(s), enter those amounts in 2.b.(i) or 2.b.(ii) respectively. Only enter a non-zero amount in 2.b.(ii) if your NC Retirement Benefit is larger than your other pension. Add both values together and enter the total into 2.b.(iii). If no amounts are applicable, enter $0.
Enter the total amount of annual tax credits for qualifying children, dependents and other credits. If no credits apply, enter $0.
Enter other income you receive each year from sources other than jobs and/or pensions. This income could be from capital gains, dividends, gifts, or other sources of income.
Use the IRS form W-4P to calculate deductions applicable to your withholding elections. If no deductions apply, enter $0.
Enter the amount of additional withholding to be taken from each pay period. If the amount of tax calculated combined with Additional Withholding exceeds benefit, no Additional Withholding will be taken.
If certificate is not filed, withholding will be based on Single Tax tables with no elections. See information on potential penalty. CAUTION: There are penalties for not paying enough federal income tax during the year. New retirees should see IRS Pub. 505 which explains tax requirements and describes penalties in detail. You may be able to avoid quarterly estimated tax payments by having enough tax withheld from your pension or annuity.
Click here to visit IRS.gov - Special filing season alerts for tax season 2023.
Instructions for North Carolina Income Tax Withholding Preference Certificate
Retirement benefits are exempt from North Carolina income tax provided you had five (5) or more years of maintained creditable service in the Retirement System as of August 12, 1989. You should complete the appropriate section of the Certificate if you want North Carolina income tax withheld from your benefits payment.
- Check box A if you do not want North Carolina tax withheld.
- Check box B if you want North Carolina tax withheld. If you check box B, you must also indicate Marital Status and Number of Allowances.
- Check Single or Married Filing Separately if you are not married, or you are a widow/widower that does not meet the qualification to file as a surviving spouse.
- Check Head of Household only if you are unmarried and pay more than 50% of the costs of keeping up a home for yourself and your dependents.
- Check Married Filing Jointly or Surviving Spouse if you are: (1) married, or (2) your spouse died in either of the two preceding tax years and you meet the following requirements: (a) Your home is maintained as the main household of a child or stepchild for whom you can claim an exemption; and you can claim an exemption; and (b) You were entitled to file a joint return with your spouse in the year of your spouse's death.
A worksheet for determining allowances is included with the Form NC-4 issued by the North Carolina Department of Revenue. Additional Withholding (Optional).
Enter the additional amount you want withheld from your retirement benefit. We will add this amount to the amount computed using the tax tables. If the calculated amount combined with the additional amount exceeds your benefit amount, the additional withholding amount will not be withheld.
Even if your retirement benefits are exempt from North Carolina income tax, we may also choose withhold for you an amount to cover some other taxable income. If this is desirable, you must check box 8, enter your marital status, allowances claimed, and a additional monthly amount to be withheld. We will then withhold this additional amount.
If you are a resident of North Carolina and are not exempt from North Carolina income tax, and do not make an election, we are required to withhold on the basis of single with O allowances. If your retirement benefits are subject to North Carolina income tax and you elect not to have tax withheld, you may be subject to tax penalties.