Section 12: DEFERRED COMPENSATION
Distributions (periodic or non-periodic) from retirement plans, annuities or employer deferred compensation plans are based upon Federal guidelines. For example, if withholding is required for Federal purposes on these payments, then State withholding is also required. A percentage method of withholding rather than using the Wage tax tables is permitted. If a percentage method of withholding is used, it is recommended that the percent withheld not be less than 5%.
Under Federal statute, withholding on certain retirement pay is required unless the recipient specifically elects not to have the tax withheld. Delaware has no such requirement, but State tax may be withheld from such payments if the recipient voluntarily requests State withholding. An annuitant who has elected to have federal tax withheld, may either elect to have state tax withheld or elect not to have state tax withheld. An annuitant who has filed Federal Form W-4P (Annuitant's request for Federal Income Tax withholding) may also request State Income Tax withholding. Effective in 1997 the Federal Office of Personnel Management implemented a Simplified State Income Tax Withholding Program. If you are a civil Service Annuitant and want to register for this program you can register by calling (800) 409-6528 or writing to OPM, P.O. Box 961, Washington, DC 20044-0001.
Effective for tax years commencing after December 31, 1995, distributions received from qualified retirement plans as defined in §4974 of the Internal Revenue Code ("IRC"), cash or deferred arrangements described in §401(k) of the IRC, and governmental deferred compensation plans described in §457 of the IRC, to the extent such distributions are applied within the tax year of the distributions for books, tuition, or fees at an institution of higher education attended by the person, or by any of the person's dependents who are not the age of twenty-six, are not subject to Delaware withholding tax.