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State income tax withholding FAQs

Q:

Is state income tax withheld when I take money out of my retirement plan?

A:

It depends on the state. If your distribution requires federal income tax withholding (for example, an eligible rollover distribution that is not rolled over), then it will generally be subject to state income tax withholding in the following states: Arkansas, Delaware, Iowa, Kansas, Maine, Maryland, Massachusetts, Mississippi, Nebraska, North Carolina, Oklahoma, Vermont and Virginia.

Some of these states have exceptions. Delaware, Kansas, North Carolina and Oklahoma require withholding on distributions from qualified plans such as 401(k)s and 403(b)s but not from IRAs (however, state income taxes will be withheld unless you opt out). Mississippi requires withholding for "early distributions" only - state income taxes for any other distribution will be withheld only if requested.

Q:

How much will be withheld from my distribution for state income taxes?

A:

State income tax withholding rates vary by state. Some states use a percentage of the distribution amount, and other states use a percentage of the federal taxes that are withheld. Please contact your tax adviser for information about your state of residence, or check with your state franchise board or state tax department.

Q:

Can I opt out of state income tax withholding?

A:

You can opt out of state income tax withholding in California, Georgia (for periodic payments) and Oregon. (State income taxes on one-time distributions in Georgia are not withheld unless requested.)

You can also opt out of state income tax withholding on distributions from IRAs in Delaware, Kansas, North Carolina and Oklahoma.

Q:

How is my state of residence determined?

A:

Your state of residence is determined by your address of record at the time of the distribution, so you should make sure your plan information is correct when you request your distribution.

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