Change to California's Default Tax Filing Status

10% of FIT default tax filing status now in effect

The state of California allows taxpayers to choose one of three tax withholding methods:

  • 10% of federal income tax (FIT)
  • A participant-specified withholding dollar amount
  • Wage tables with a default of "Married with 3 allowances"

Starting September 10, 2012, Nationwide's default California State Tax withholding amount for distributions to impacted participants changed from "Married with 3 allowances" to "10% of Federal Income Tax (FIT)".

The 10% of FIT default impacts only residents of California who receive a new distribution and do not submit a state tax form.  If a state tax form is submitted, the withholding will continue to be calculated based on the wage table selected on the form.

The change to Nationwide's default withholding was made to comply with new aggregation requirements set in place by the State of California as well as to create consistency across all administered plans.

Nationwide also now aggregates all the distributions to a participant in a given tax year to calculate the appropriate tax withholding. In other words, all participant withdrawals for a tax year are combined, or aggregated, for tax calculation purposes. Distributions with a submitted DE-4P form will be included in this aggregation to determine the appropriate withholdings.

Common scenarios impacted by this change

For purposes of these scenarios, the "Married with 3 allowances" withholding method has been assumed.

A participant took a partial distribution earlier this year and had no withholding, then took another distribution that did have state withholding. What changed?

  • As of August 2012, Nationwide's default withholding went from Married w/ 3 allowances wage table to 10% of the FIT. Any distribution taken using the Married w/ 3 allowances default and that was under the minimum withholding threshold of $25,054 had no state taxes withheld. Under the new 10% of FIT default, state taxes will be withheld that equal 10% of the federal withholding.

A participant filed a DE-4P for two distributions. The first distribution did not have withholding, but the second distribution did. Why?

  • If a DE-4P withholding form is submitted, there is no state withholding until the minimum threshold ($25,054) is surpassed. So if two withholding forms for Married w/ 3 allowances were submitted, then only after the $25,054 threshold is passed will any taxes be withheld. Once the minimum threshold is passed, taxes will be withheld on the entire aggregated total of the distributions for the year to date.
A participant is in Periodic payout and submitted a DE-4P form and took a partial distribution which had high state withholding, why?
  • Periodic distributions are aggregated with partial distributions for the current calendar year. If the minimum threshold ($25, 054) is surpassed, the entire state withholding amount for the aggregated annualized total of the distributions will all come out of the partial distribution amount.

Questions about how this change impacts your account, or any other questions about the Plan or your account, can be directed to our Customer Service Call Center.

Withdrawals from 457 plans are taxed as ordinary income.

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