When are pension and annuity payments subject to federal income tax withholding?

Pension and annuity payments are subject to federal income tax withholding based on the amount that is considered taxable income. Generally, these payments are taxed in the year they are received, and they often consist of both taxable and non-taxable portions. The correct response identifies that withholding is influenced by whether the total payments exceed a specific income threshold that determines the tax liability.

When pension or annuity payments exceed the certain income threshold established by the Internal Revenue Service, federal income tax withholding applies because they contribute significantly to the recipient's taxable income. The threshold serves as a guideline for ensuring that individuals do not underpay their taxes for the year, given that larger sums can increase tax obligations.

In contrast, non-taxable parts of pension payments or payments not expected to be includible in the recipient's gross income would not typically be subject to withholding. Therefore, the nature of the income and its expectation of taxing is central to understanding withholding requirements.