Nebraska Adds Mandatory Pension, Annuity Withholding

October 28, 2005 ( - Starting January 1, Nebraska residents who opt for federal income tax withholding out of pension and annuity payments now must also have state taxes kept aside as well.

That is as a result of the approval by the Nebraska Legislature of  Legislative Bill 216 .    Before, state tax withholding was considered voluntary at the taxpayer’s request.

According to  an announcement  by the Nebraska Department of Revenue, the withholding is figured in the same manner as

withholding from wages. Taxpayers are to use the same number of allowances and marital status as claimed by the payee on the Federal Form W-P, Withholding Certificate for Pension or Annuity Payments.

Employers should use the appropriate payroll period in the  1998 Nebraska Circular EN to coincide with the type ofperiodic payment (i.e., monthly, quarterly), together with the applicable withholding allowances and marital status to compute the amount to withhold for state income tax purposes.

Nonperiodic payments or eligible rollover distributions   subject to either the mandatory 10% or 20% federal rate will withhold at a rate of 5% for state income tax purposes, the announcement said.