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Home » Voluntary Withholding System
The Voluntary Withholding System lets people ask the payer of certain types of income—like pensions, annuities, or government payments—to take federal income tax out before sending the money. Unlike regular paycheck withholding, which employers have to do, this system is optional. It’s a handy way to pay taxes as you go, avoiding a big tax bill later when filing a return. The IRS oversees this through Form W-4V, Voluntary Withholding Request, which tells the payer how much tax to hold back. Think of it as a tool to keep your taxes on track without the hassle of sending extra payments yourself.
This system applies to specific payments, not all income. It’s mostly for things like Social Security benefits, unemployment compensation, or certain federal payments (like crop disaster relief). The IRS designed it to help people manage taxes on income that doesn’t automatically have tax taken out, making life a bit easier come tax season.
Here’s the step-by-step breakdown of how it gets set up and works:
Not every type of income qualifies. The IRS says voluntary withholding covers:
Regular wages from a job don’t use this system—they stick with the mandatory Form W-4 process. Check with the payer (like the Social Security Administration or a state unemployment office) to confirm if your payment fits.
To start, stop, or change withholding, fill out Form W-4V. This short form—only one page—asks for:
Give the completed form to the payer, not the IRS. For example, mail it to your local Social Security office for benefits or your state unemployment agency for jobless pay.
You pick how much tax gets taken out, but the choices are limited. Form W-4V lists these flat percentages:
No custom amounts here—just these four options. For unemployment benefits, though, only 10% is allowed, per IRS rules. Pick one by checking the box on the form. For instance, if you get $1,000 monthly in Social Security and choose 10%, the payer withholds $100, and you get $900.
It’s all voluntary, so you decide what works best. The IRS doesn’t force it—it’s your call.
This system helps in a few big ways:
The IRS says it’s especially useful if you expect to owe taxes on these payments or want to avoid penalties for not paying enough during the year.
Imagine you get $2,000 a month in Social Security benefits. You figure you’ll owe some tax on it, so you decide to withhold 10%:
Later, if you want less withheld—like 7%—submit a new form. Then it’s $140 per month ($2,000 × 0.07), and you get $1,860 instead.