The percentage method of determining an employees federal income tax deductions __________.

For the latest information about developments related to Pub. 15-T, such as legislation enacted after it was published, go to IRS.gov/Pub15T.

Redesigned Form W-4P and new Form W-4R. Form W-4P, Withholding Certificate for Periodic Pension or Annuity Payments (previously titled Withholding Certificate for Pension or Annuity Payments), has been redesigned for 2022. The new Form W-4P is now used only to request withholding on periodic pension or annuity payments. Previously, Form W-4P was also used to request additional withholding on nonperiodic payments and eligible rollover distributions. Starting in 2022, additional withholding on nonperiodic payments and eligible rollover distributions is requested on new Form W-4R, Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions. Although the final redesigned Form W-4P and new Form W-4R are available for use in 2022, the IRS is postponing the requirement to begin using the forms until January 1, 2023. Payers should update their system programming for these forms and are encouraged to begin using them in 2022 as soon as programming is in place but may otherwise continue to use the 2021 Form W-4P in 2022. Section 1 of this publication includes Worksheet 1B for payers to figure withholding on periodic payments of pensions and annuities based on a 2022 Form W-4P or a 2021 and earlier Form W-4P. Worksheet 1B is used with the STANDARD Withholding Rate Schedules in the 2022 Percentage Method Tables for Automated Payroll Systems and Withholding on Periodic Payments of Pensions and Annuities that are included in section 1. If a payer is figuring withholding on periodic payments based on a 2021 or earlier Form W-4P, the payer may also figure withholding using the methods described in section 3 and section 5. For more information about the redesigned Form W-4P, see Form W-4P, later. Also, see How To Treat 2021 and Earlier Forms W-4P as if They Were 2022 or Later Forms W-4P, later, for an optional computational bridge.For more information about the new 2022 Form W-4R, see section 8 of Pub. 15-A, Employer's Supplemental Tax Guide.

This publication supplements Pub. 15, Employer's Tax Guide, and Pub. 51, Agricultural Employer’s Tax Guide. It describes how to figure withholding using the Wage Bracket Method or Percentage Method, describes the alternative methods for figuring withholding, and provides the Tables for Withholding on Distributions of Indian Gaming Profits to Tribal Members. You may also use the Income Tax Withholding Assistant for Employers at IRS.gov/ITWA to help you figure federal income tax withholding; however, this transitional tool will no longer be available after 2022.

Although this publication may be used in certain situations to figure federal income tax withholding on supplemental wages, the methods of withholding described in this publication can’t be used if the 37% mandatory flat rate withholding applies or if the 22% optional flat rate withholding is used to figure federal income tax withholding. For more information about withholding on supplemental wages, see section 7 of Pub. 15.

Although this publication is used to figure federal income tax withholding on periodic payments of pensions and annuities, the methods of withholding described in this publication can’t be used to figure withholding on nonperiodic payments or withholding on eligible rollover distributions. Periodic payments are those made in installments at regular intervals over a period of more than 1 year. They may be paid annually, quarterly, monthly, etc. For more information about withholding on pensions and annuities, see section 8 of Pub. 15-A.

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Beginning with the 2020 Form W-4, employees are no longer able to request adjustments to their withholding using withholding allowances. Instead, using the new Form W-4, employees provide employers with amounts to increase or decrease the amount of taxes withheld and amounts to increase or decrease the amount of wage income subject to income tax withholding.

Form W-4 contains 5 steps. Every Form W-4 employers receive from an employee in 2020 or later should show a completed Step 1 (name, address, social security number, and filing status) and a dated signature in Step 5. Employees complete Steps 2, 3, and/or 4 only if relevant to their personal situations. Steps 2, 3, and 4 show adjustments that affect withholding calculations.

For employees who don’t complete any steps other than Step 1 and Step 5, employers withhold the amount based on the filing status, wage amounts, and payroll period. But see Exemption from withholding, later.

For employees completing one or more of Steps 2, 3, and/or 4 on Form W-4, adjustments are as follows.

Employers may use an optional computational bridge to treat 2019 or earlier Forms W-4 as if they were 2020 or later Forms W-4 for purposes of figuring federal income tax withholding. This computational bridge allows you to use computational procedures and data fields for a 2020 and later Form W-4 to arrive at the equivalent withholding for an employee that would have applied using the computational procedures and data fields on a 2019 or earlier Form W-4. You must make up to four adjustments to use this computational bridge.

1. Select the filing status in Step 1(c) of a 2020 or later Form W-4 that most accurately reflects the employee’s marital status on line 3 of a 2019 or earlier Form W-4. Treat the employee as “Single or Married filing separately” on a 2020 or later Form W-4 if the employee selected either “Single” or “Married, but withhold at higher single rate” as their marital status on their 2019 or earlier Form W-4. Treat the employee as “Married filing jointly” on a 2020 or later Form W-4 if the employee selected “Married” as their marital status on their 2019 or earlier Form W-4. You can’t convert an employee to a filing status of “Head of household” using this computational bridge.

2. Enter an amount in Step 4(a) on a 2020 or later Form W-4 based on the filing status that you determined in (1) above when you converted the employee’s marital status on a 2019 or earlier Form W-4. Enter $8,600 if the employee’s filing status is “Single or Married filing separately” or $12,900 if the employee’s filing status is “Married filing jointly.”

3. Multiply the number of allowances claimed on line 5 of an employee’s 2019 or earlier Form W-4 by $4,300 and enter the result in Step 4(b) on a 2020 or later Form W-4.

4. Enter the additional amount of withholding requested by the employee on line 6 of their 2019 or earlier Form W-4 in Step 4(c) of a 2020 or later Form W-4.

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For more information, see Treasury Decision 9924, 2020-44 I.R.B. 943, available at IRS.gov/irb/2020-44_IRB#TD-9924.

Payees use Form W-4P to have payers withhold the correct amount of federal income tax from periodic pension, annuity (including commercial annuities), profit-sharing and stock bonus plan, or IRA payments.

Using new 2022 Form W-4P.

Payees provide payers with amounts to increase or decrease the amount of taxes withheld and amounts to increase or decrease the amount of pension/annuity payments subject to income tax withholding. Form W-4P contains 5 steps. Every Form W-4P payers receive from a payee in 2022 should show a completed Step 1 (name, address, social security number (SSN), and filing status) and a dated signature in Step 5. Payees complete Steps 2, 3, and/or 4 only if relevant to their personal situations. Steps 2, 3, and 4 show adjustments that affect withholding calculations.

For payees completing one or more of Steps 2, 3, and/or 4 on the 2022 Form W-4P, adjustments are as follows.

Optional use of 2021 Form W-4P for 2022.

Although the final redesigned Form W-4P is available for use in 2022, the IRS is postponing the requirement to begin using the form until January 1, 2023. Payers should update their system programming for the 2022 Form W-4P and are encouraged to begin using it in 2022 as soon as programming is in place but may otherwise continue to use the 2021 Form W-4P. The 2021 Form W-4P contains three lines to complete after the payee enters their name, SSN, address, and claim or identification number, if any, of their pension or annuity contract.

Line 1.

If the payee doesn't want any federal income tax withheld from their pension or annuity, they check the box on line 1 and skip lines 2 and 3.

Line 2.

The payee enters the total number of allowances and checks the box for their marital status.

Line 3.

The payee can enter an additional dollar amount that they want withheld from each periodic pension or annuity payment.

Payers may use an optional computational bridge to treat 2021 or earlier Forms W-4P as if they were 2022 or later Forms W-4P for purposes of figuring federal income tax withholding. This computational bridge can reduce system complexity by allowing payers to permanently use computational procedures and data fields for a 2022 and later Form W-4P to arrive at the equivalent withholding for a payee that would have applied using the computational procedures and data fields on a 2021 or earlier Form W-4P. You must make up to four adjustments to use this computational bridge, but it will simplify data storage and eliminate some steps in Worksheet 1B.

1. Select the filing status in Step 1(c) of a 2022 or later Form W-4P that most accurately reflects the payee's marital status on line 2 of a 2021 or earlier Form W-4P. Treat the payee as “Single or Married filing separately” on a 2022 or later Form W-4P if the payee selected either “Single” or “Married, but withhold at higher single rate” as their marital status on their 2021 or earlier Form W-4P. Treat the payee as “Married filing jointly” on a 2022 or later Form W-4P if the payee selected “Married” as their marital status on their 2021 or earlier Form W-4P. You can't convert a payee to a filing status of “Head of household” using this computational bridge.

2. Enter an amount in Step 4(a) on a 2022 or later Form W-4P based on the filing status that you determined in (1) above when you converted the payee's marital status on a 2021 or earlier Form W-4P. Enter $8,600 if the payee's filing status is “Single or Married filing separately” or $12,900 if the payee's filing status is “Married filing jointly.”

3. Multiply the number of allowances claimed on line 2 of a payee's 2021 or earlier Form W-4P by $4,300 and enter the result in Step 4(b) on a 2022 or later Form W-4P.

4. Enter the additional amount of withholding requested by the payee on line 3 of their 2021 or earlier Form W-4P in Step 4(c) of a 2022 or later Form W-4P.

If you use this computational bridge, you will skip Steps 1(j)–(l) and any other instructions in Worksheet 1B that reference a 2021 or earlier Form W-4P.

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To figure the income tax to withhold, you may reduce the last digit of the wages to zero, or figure the wages to the nearest dollar. You may also round the tax for the pay period to the nearest dollar. If rounding is used, it must be used consistently. Withheld tax amounts should be rounded to the nearest whole dollar by dropping amounts under 50 cents and increasing amounts from 50 to 99 cents to the next dollar. For example, $2.30 becomes $2 and $2.50 becomes $3.

If you're an employer with an automated payroll system, use Worksheet 1A and the Percentage Method tables in this section to figure federal income tax withholding. This method works for Forms W-4 for all prior, current, and future years. This method also works for any amount of wages. If the Form W-4 is from 2019 or earlier, this method works for any number of withholding allowances claimed.

If you're a payer making periodic payments of pensions and annuities, use Worksheet 1B and the Percentage Method tables in this section to figure federal income tax withholding. This method works for Forms W-4P for all prior, current, and future years. If a payer is figuring withholding on periodic payments based on a 2021 or earlier Form W-4P, the payer may also figure withholding using the methods described in section 3 and section 5.

If you compute payroll manually and your employee has not submitted a Form W-4 for 2020 or later, and you prefer to use the Percentage Method or you can't use the Wage Bracket Method tables because the employee's annual wages exceed the amount from the last bracket of the table (based on marital status and pay period) or the employee claimed more than 10 allowances, use the worksheet below and the Percentage Method tables that follow to figure federal income tax withholding. This method works for any number of withholding allowances claimed and any amount of wages.

You may use various methods of figuring federal income tax withholding. The methods described next may be used instead of the Percentage Method and Wage Bracket Method discussed earlier in this publication. Use the method that best suits your payroll system and employees.

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Cumulative wages.

An employee may ask you, in writing, to withhold tax on cumulative wages. If you agree to do so, and you’ve paid the employee for the same kind of payroll period (weekly, biweekly, etc.) since the beginning of the year, you may figure the tax as follows.

Add the wages you’ve paid the employee for the current calendar year to the current payroll period amount. Divide this amount by the number of payroll periods so far this year, including the current period. Figure the withholding on this amount, and multiply the withholding by the number of payroll periods so far this year, including the current period. Subtract the total tax already deducted and withheld during the calendar year from the total amount of tax calculated. The excess is the amount to withhold for the current payroll period. See Revenue Procedure 78-8, 1978-1 C.B. 562, for an example of the cumulative method.

If you make certain payments to members of Indian tribes from gaming profits, you must withhold federal income tax. You must withhold if (a) the total payment to a member for the year is over $12,950, and (b) the payment is from the net revenues of class II or class III gaming activities (classified by the Indian Gaming Regulatory Act) conducted or licensed by the tribes.

A class I gaming activity isn't subject to this withholding requirement. Class I activities are social games solely for prizes of minimal value or traditional forms of Indian gaming engaged in as part of tribal ceremonies or celebrations.

To figure the amount of tax to withhold each time you make a payment, use the table on the next page for the period for which you make payments. For example, if you make payments weekly, use Table 1; if you make payments monthly, use Table 4. If the total payments to an individual for the year are $12,950 or less, no withholding is required.

Example.

A tribal member is paid monthly. The monthly payment is $5,000. Use Table 4, Monthly Distribution Period, to figure the withholding. Subtract $4,560 from the $5,000 payment for a remainder of $440. Multiply this amount by 22% for a total of $96.80. Add $400.62 for a total withholding of $497.42.