What law dictates for a company to withhold or to not withhold State Tax upon liquidation of a 401k?

I am 61 years old. I cashed out a 401k. I have been a resident of FL for over 2 years. There are no FL State taxes due. I am visiting my sister and had the check mailed to her address in MD. The company withheld monies for MD State Tax. When I submitted the request for liquidate my 401k I checked the box to withhold Federal Tax. I did not check the box to withhold any State Tax.

The company is suggesting I file a return for refund with MD next year. That is unacceptable. I am a resident of FL. I want my money now. The company made the error. I am requesting they fix their error and reissue a correct check. I need to know the facts in order to escalate this matter to a higher level.

Can anyone help?
Thanks in advance.

RichardBondMan

I agree with you that the 4019k) provider should not have withheld FL tax if that is, in fact, the law in FL. I live close to FL an understand there is no income tax levied in FL but I am not sure if FL is required to withold taxes from the proceeds of a 401(k) of a FL resident. Regardless, I do not think it was proper to withold MD tax as you are not a resident of MD. So the issue is really irrelevant and you should not have to file a MD tax return to recover your money. Call a CPA or even a PA that practices in FL, ask them if FL law dictates FL witholding on the proceeds of 401(k) distribution and provide them you age and the fact that the ck was simply mailed to MD as you were visiting there. Then you will be in position to demand return of your money.

ScottGem

401K plans are governed under Federal laws. I don't believe the Tax code requires state withholding. Its possible that Maryland law does. I would go back to your company and ask them to justify under some law the MD withholding. The question I would have is whether in the form you filled out, did you give your home address or just the MD address?

RichardBondMan

Please accept my apologies for mispelling 401(k) as 4019k) and for incorrectly stating that the 401(k) provider should not have withheld FL tax when you clearly stated they withheld MD tax. It looks to me like an error on their part for w/holding MD tax but it's possible that another answer you received from ScottGem is correct in that they may be obligated under federal law to withold taxes for the state where the ck is mailed to. 401(k) regulations are complicated and numerous. Try calling FL and MD, and start with asking for the Dept of Revenue in each state. You could "google" it using various search terms and might get lucky and find a reliable source of info but I would think the Revenue Dept of each state might give you a quick reliabe answer. The Fed Govt has a site you might query but I am not sure of it's website address.

AtlantaTaxExpert

Contact the company and tell them that they made a mistake in withholding the MD taxes, as you are NOT a MD resident. They should refund you the money and THEY should file an amended return to MD to get the withheld taxes back.

If this fails to get the response you want, you CAN report them to the state agency which regulates pension plans in the state in which they are located.

ChrisJim1984

Thanks for everyone's responses. Like the Tax Expert stated, the company has finally agreed to send me a check for the amount they mistakenly deducted. They're going to file a claim with MD to get their portion refunded to them.

Thanks again!!

AtlantaTaxExpert

Glad to help!