L E G I S L A T I V E FISCAL BUREAU STATE OF WISCONSIN JANUARY 2023

Informational Paper #2 Individual Income Tax

Individual Income Tax

Prepared by

Dan Spika

Wisconsin Legislative Fiscal Bureau One East Main, Suite 301 Madison, WI 53703 http://legis.wisconsin.gov/lfb

TABLE OF CONTENTS

Introduction ............................................................................................................................................... 1

Policy Goals in Structuring an Income Tax .............................................................................................. 1

Wisconsin's Income Tax Structure ........................................................................................................... 2

Overview ........................................................................................................................................... 2

Wisconsin Adjusted Gross Income ................................................................................................... 2

Standard Deduction ......................................................................................................................... 10

Personal Exemptions ....................................................................................................................... 11

Tax Rates and Brackets ................................................................................................................... 12

Nonrefundable Tax Credits ............................................................................................................. 12

Refundable Tax Credits ................................................................................................................... 14

Tax on Pass-Through Entities ......................................................................................................... 16

Summary of Features of the Individual Income Tax ...................................................................... 17

Additional Differences Between State and Federal Income Tax Structures .......................................... 17

Historical Tax Collections Information .................................................................................................. 21

Distributional Information for Tax Year 2020 ....................................................................................... 22

Appendix: History of the Wisconsin Individual Income Tax ................................................................ 27

Development of the Tax Structure .................................................................................................. 27

Income Tax Surcharges ................................................................................................................... 36

Income Tax Check-Offs ................................................................................................................. 36

Chronology of Modifications Since 1979 ....................................................................................... 37

1 Individual Income Tax

The state individual income tax is the major source of general fund tax revenue in Wisconsin. In fiscal year 2021-22, individual income tax col- lections totaled $9.21 billion and comprised nearly 45% of state general fund tax revenue.

This paper is organized into five general sec- tions. These sections include: (a) policy goals in structuring an income tax; (b) Wisconsin's income tax structure; (c) differences between 2022 state and federal tax structures; (d) historical tax collec- tions information; and (e) distributional infor- mation for tax year 2020. Finally, an appendix is attached that summarizes the historical develop- ment of the Wisconsin individual income tax, in- cluding the recent changes made during the 2021- 2022 legislative session.

Policy Goals in Structuring an Income Tax

Several principles of tax policy warrant consideration in structuring an individual income tax. A brief summary of some major goals of tax policy is presented below.

Equity. The tax structure should provide equal treatment of equals and include only reasonable differences in the taxation of unequals. The prin- ciple of horizontal equity would indicate that tax- payers with the same amount of economic income should pay the same tax. Economic income may be adjusted to reflect distinctions for a lesser abil- ity to pay taxes due to unusual medical expenses or casualty and theft losses or to recognize the higher subsistence costs of taxpayers with large families.

The principle of vertical equity attempts to distinguish among taxpayers with different amounts of income. Under this principle, it is ar- gued that taxpayers with larger incomes have a greater ability to pay taxes and should pay more tax. Various provisions within the tax system may be used to achieve vertical equity, including pro- visions to exempt from tax a certain amount of in- come through a low-income allowance, standard deduction, or tax credit, or to tax higher-income taxpayers at higher tax rates through a progressive tax rate and bracket structure.

Efficiency. The goal of efficiency in the tax structure is to generate tax revenue without creat- ing tax incentives that could distort the allocation of resources, investment, consumption, or work effort in society. An efficient tax creates minimal incentives for taxpayers to: (a) either work more hours or choose more leisure time; (b) invest in certain activities in preference to others; or (c) save or consume based on tax considerations. Tax provisions that reduce work effort or favor one type of investment over another may eventually reduce the total output in the economy.

Simplicity. The goal of simplicity for tax pol- icy is to provide a tax system where the burden and costs of administration and compliance by both the taxpayer and the government are minimal. The tax structure should be generally understandable and should convey certainty to the taxpayer regarding the collection of taxes and administrative rulings.

Redistribution. The tax system can be used to transfer resources from individuals to the govern- ment to meet the collective goals of society. The income tax, as a tax based on capacity to pay, can be utilized to channel tax relief to low-income taxpayers to relieve undue hardship.

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Economic Stabilization. Individual income tax collections generally rise over time with economic growth and inflation. During periods of increasing inflation, the income tax automatically draws re- sources out of the economy through rising tax lia- bilities, which can reduce demand and help to sta- bilize prices. The growth in revenues from the in- come tax over time also provides additional flexi- bility for fiscal policy to respond to growth or to fluctuations in economic cycles by lowering taxes or by increasing government expenditures.

Various features of the state's individual in- come tax reflect these policy goals. By way of ex- ample, the state generally uses federal adjusted gross income (AGI) as the starting point in deter- mining state taxable income, to simplify taxpayer compliance. The tax rate and bracket structure and the sliding scale standard deduction introduce ele- ments of progressivity into the income tax. Fi- nally, tax credits and personal exemptions are used to adjust for the differing capacities of taxpayers to pay taxes.

Wisconsin's Income Tax Structure

Overview

There are several steps involved in calculating state income tax liability for tax year 2022. In brief, these steps are to: (a) determine Wisconsin AGI; (b) subtract the state's standard deduction and personal exemptions from AGI to determine Wisconsin taxable income; (c) apply the state's tax rate and bracket schedule to taxable income to find the gross tax amount; (d) subtract applicable non- refundable state tax credits from the gross tax amount to arrive at net tax liability; and (e) sub- tract relevant refundable state tax credits from net tax liability to arrive at total tax liability. Each of these steps is summarized in the following sections of this paper. The sections also note dif- ferences in various tax treatments according to filing status. The federal and state tax systems both employ several categories of filing status, which are based on the taxpayer's marital status: (a) mar- ried filing jointly; (b) single; (c) head-of-house- hold; and (d) married filing separately.

Wisconsin Adjusted Gross Income

The starting point to arrive at Wisconsin AGI is federal AGI, which is derived from federal gross income. Gross income is income from all sources, except those for which specific exclusions are pro- vided. Examples of items included in gross in- come are: wages, salaries, and tips; interest and dividends; state or local tax refunds, credits or off- sets; alimony received; business income and losses; capital gains and losses; certain individual retirement account (IRA) distributions; pensions and annuities; rents, royalties, and partnership in- come; farm income and losses; unemployment benefits; and a portion of social security benefits.

Examples of items specifically excluded from gross income are: (a) transfer payments, such as veterans' benefits and cash public assistance (in- cluding the federal stimulus payments made in 2020 and 2021); (b) gifts and inheritances; (c) qualified scholarships; (d) contributions by an em- ployer to accident and health plans; (e) employer adoption and educational assistance programs; and (f) qualified distributions from Coverdell ed- ucation savings accounts, health savings accounts (HSAs), and qualified tuition programs.

Once gross income is determined, federal law permits the following subtractions to arrive at fed- eral AGI: up to $250 of certain expenses incurred by eligible K-12 educators; contributions to a self- employed retirement plan; IRA contributions for taxpayers below certain income levels or not cov- ered by a pension plan; qualified student loan in- terest; qualified tuition and fees; principal and interest on qualified education loans paid by an employer on behalf of an employee; qualifying HSA and medical savings account contributions; one-half of the self-employment tax for social

3 security and Medicare; health insurance for the self-employed; penalties on early withdrawals of savings; alimony paid; certain moving expenses for active-duty members of the Armed Forces; and certain business expenses of military reservists, performing artists, and fee-basis government offi- cials.

Wisconsin has updated its tax laws to generally conform to federal provisions enacted as of De- cember 31, 2020. However, Wisconsin does not adhere to all provisions in the Internal Revenue Code (IRC), as state law enumerates several ex- clusions. To arrive at Wisconsin AGI, Wisconsin requires the following major modifications to fed- eral AGI.

Social Security Benefits. Since tax year 2008, social security benefits have been completely exempt from the state income tax. Prior to tax year 1994, up to 50% of social security benefits was taxed for higher-income taxpayers under both federal and state law. The federal taxation of social security was modified under the Revenue Reconciliation Act of 1993, which increased the maximum amount of taxable social security benefits from 50% to 85%, beginning in tax year 1994. However, the pre-1994 provision was retained for state tax purposes, and applied for social security benefits received through tax year 2007.

Under federal law, social security benefits are taxed under a three-tiered approach. No tax is im- posed if provisional income does not exceed $25,000 for single filers and $32,000 for married- joint filers. For single taxpayers with provisional income between $25,000 and $34,000, and for married-joint taxpayers with provisional income between $32,000 and $44,000, up to 50% of social security benefits is taxable. Provisional income equals one-half of social security plus federal AGI, tax-exempt interest income, and amounts earned in a foreign country, U.S. possession, or Puerto Rico that are excluded from gross income.

For taxpayers with provisional income above these thresholds, up to 85% of social security is taxable under federal law. The taxable portion of social security payments is the lesser of: (a) 85% of social security; or (b) the amount included under the 1993 law (not to exceed $4,500 for single taxpayers or $6,000 for married-joint tax- payers) plus 85% of the excess of provisional in- come over the applicable income threshold. Mar- ried taxpayers who file separate returns are taxed on the lesser of 85% of social security or 85% of provisional income.

Federal/State Bond Interest. For federal tax purposes, interest from state and municipal bonds is exempt, and interest from U.S. obligations is taxable. Federal law requires states to exempt from state income tax interest from U.S. govern- ment securities. In Wisconsin, interest from state and municipal obligations (including Wisconsin's) is generally taxable. Specific state exclusions are provided for interest from: (a) public housing au- thority or community development authority bonds issued by Wisconsin municipalities; (b) Wisconsin Housing Finance Authority bonds; (c) Wisconsin municipal redevelopment authority bonds; (d) Wisconsin Housing and Economic De- velopment Authority (WHEDA) bonds, issued on or after December 11, 2003, to fund multifamily affordable housing or elderly housing projects; (e) certain WHEDA bonds issued before January 29, 1987; (f) certain public housing agency bonds is- sued before January 29, 1987, by agencies in other states; (g) bonds issued by local exposition dis- tricts, local professional baseball park districts, lo- cal professional football stadium districts, and local cultural arts districts; (h) bonds issued by the governments of Puerto Rico, Guam, the Virgin Islands, or the Northern Mariana Islands, or, for bonds issued after October 16, 2004, the Govern- ment of American Samoa; (i) bonds or notes is- sued by the Wisconsin Aerospace Authority; (j) bonds issued on or after October 27, 2007, by the Wisconsin Health and Educational Facilities Authority (WHEFA) to fund the acquisition of information technology hardware or software; (k)

4 WHEDA bonds or notes issued to provide loans to a public affairs network (WisconsinEye); (l) WHEFA bonds or notes if issued for the benefit of persons who are eligible to receive bonds or notes from another issuer for the same purpose as the bonds or notes issued for the person by WHEFA and the interest income from those bonds or notes would also be exempt; (m) WHEFA bonds issued for an amount totaling $35 million or less; (n) cer- tain conduit revenue bonds; and (o) bonds issued by a sponsoring municipality to assist a local ex- position district.

Deductions for Health Insurance. Under both federal and state laws, self-employed persons are entitled to deduct 100% of amounts paid for health insurance for themselves, their spouse, and their dependents. The state deduction was expanded under 2021 Act 1, which stipulated that the deduction could be used to offset the individual's total wages, salary, tips, unearned income, and net trade or business earnings that are taxable in Wisconsin. Under prior law, the deduction was limited to the individual's Wisconsin net trade or business earnings only.

Three additional deductions are allowed under the Wisconsin state income tax for health insur- ance premium payments. These deductions extend to payments by individuals: (a) who are employ- ees not covered by employer-provided medical in- surance; (b) who have no employer and no self- employment income; and (c) who have insurance through their employment, but their employer does not pay the entire premium.

Organ Donor Expenses. Under state law, medical expenses that are deductible as federal itemized deductions are generally allowable de- ductions for use in calculating the state's itemized deduction credit (described in this paper under "Nonrefundable Tax Credits"). Federal law permits taxpayers who itemize deductions to de- duct medical and dental expenses exceeding 7.5% of federal AGI. Such allowable deductions include out-of-pocket surgical, hospital, laboratory, and certain transportation and lodging expenses of organ donors or possible organ donors. Meals and lost wages associated with organ donation are not included in calculating the deduction.

Since tax year 2004, a Wisconsin resident may subtract up to $10,000 from federal AGI when computing Wisconsin AGI if the taxpayer, the tax- payer's spouse, or the taxpayer's dependent, while living, donates one or more organs to another hu- man being for organ transplantation. The subtrac- tion is allowed only for unreimbursed travel ex- penses, lodging expenses, and lost wages related to the organ donation. A subtraction for such expenses may only be claimed once and must be claimed in the year in which the organ transplan- tation occurs. The taxpayer may also include allowable organ donation expenses in calculating the itemized deduction credit.

Unemployment Benefits. In tax year 1986, a limited exclusion for unemployment compensa- tion benefits was provided under federal and state law. This exclusion, which was repealed under federal law beginning with the 1987 tax year, is retained for state tax purposes. For tax year 2020 only, the first $10,200 per individual of unemploy- ment compensation was excluded from federal in- come tax for taxpayers below specified income thresholds, but Wisconsin did not conform to this provision.

Under the state exclusion, if the taxpayer's fed- eral AGI is less than or equal to a base amount, then the entire benefit amount is excluded from in- come. The base amount is $12,000 for single tax- payers, $18,000 for married couples filing joint re- turns, and zero for married couples filing separate returns when the couple lived together at some point during the year. The base amount for single taxpayers applies in the case of married taxpayers filing separate returns who lived separately for the entire year. If federal AGI exceeds the base amount, then the amount of unemployment com- pensation benefits includible in gross income is the lesser of: (a) one-half of the excess of the

5 taxpayer's AGI, including benefits, over the base amount; or (b) the amount of the unemployment compensation benefits.

Capital Gains Exclusion. A capital gains ex- clusion is provided for 60% of the net capital gain from the sale of farm assets and 30% of the net capital gain from the sale of other assets, provided those assets are held more than one year (long- term capital gain) or are acquired from a decedent. Gains from assets held one year or less are fully taxed. The amount of capital losses that may be used to offset ordinary income is limited to $500 annually, with the remainder carried over to future years. Pursuant to 2021 Act 157, beginning in tax year 2023, the net capital loss limitation is in- creased to $3,000 annually (the same limit as un- der federal law).

Under federal law, gains from the sale of qual- ified small business stock acquired after Septem- ber 27, 2010, and held for more than five years are eligible for a 100% exclusion. Under state law, be- ginning in tax year 2014, gains on such stock ac- quired after December 31, 2013, are eligible for a 50% exclusion.

Capital Gains Exclusion on Business Assets Sold to Family Members. A complete exclusion is provided for net long-term capital gains realized on the sale of business assets and assets used in farming to an eligible family member. This provision took effect in tax year 1998. An eligible family member includes a person who is related by blood, marriage, or adoption within the third degree of kinship, which includes children, grand- children, great grandchildren, parents, grandpar- ents, great-grandparents, brothers, sisters, neph- ews, nieces, uncles, and aunts.

Besides individuals, this exclusion also applies to shares in a corporation or trust that meet the same standards that allow a corporation or trust to carry on farming operations in the state. These standards provide that the corporation or trust may not have more than 15 shareholders or beneficiaries (except that one family may count lineal ancestors and descendants, aunts, uncles, and first cousins as one shareholder), that there are no more than two classes of shares, and that all shareholders or beneficiaries are natural persons.

A family member who purchases an asset un- der this provision is required to retain ownership for at least two years. If the business assets or the assets used in farming are resold within two years, a penalty will be imposed equal to the amount of income tax that would have been imposed on the initial seller if the complete exclusion did not ap- ply to the transaction, prorated according to the amount of time the assets were held. Consider an asset sold to a family member upon which sale a gain of $1,000 was registered. If the family mem- ber resells that asset 18 months after they receive it, 75% of the $1,000 gain ($750) would be exempt from tax (18 months held / 24 total months = 0.75). The remaining $250 of the gain would be subject to a tax penalty as if the gain had been initially in- cluded as income and taxed as a long-term capital gain.

Capital Gains Deferral for Gains Reinvested in a Qualified Wisconsin Business. A deferral is provided for a long-term capital gain, provided the claimant invests all of the proceeds in a qualified Wisconsin business within 180 days of the sale of the asset generating the gain and notifies the De- partment of Revenue (DOR) that the capital gain has been reinvested and, therefore, will not be de- clared on the claimant's income tax return. The gain is treated as a deferral, so the basis for the in- vestment in the Wisconsin business is calculated by subtracting the initial gain from the investment, defined as the amounts paid to acquire stock or other ownership interest in the business. That is, the deferral would become taxable when the in- vestment is sold. Upon application by a business, DOR is required to register it as a qualified Wis- consin business, provided the business meets the following criteria in the year immediately preced- ing the application for certification: (a) the busi- ness must have at least two full-time employees

6 and at least 50% of the business' payroll compen- sation must be paid by the business in Wisconsin; and (b) at least 50% of the value of real and tangi- ble personal property owned or rented and used by the business must be located in Wisconsin. Busi- nesses seeking registration must submit an appli- cation to DOR in each taxable year for which cer- tification is desired. The deferral first applied in tax year 2011, but was modified, as reflected above, to apply as of tax year 2014.

Capital Gains Exclusion for Gains from the Sale of a Qualified Wisconsin Business Invest- ment. A complete exclusion is provided for a long- term capital gain from the sale of an investment in a qualified Wisconsin business, provided the in- vestment was purchased after December 31, 2010, and held for at least five years. In order to qualify for the exclusion, a capital gain must meet the following requirements: (a) the gain is realized from the sale of any investment in a business which is a qualified Wisconsin business in both the year it is purchased by the claimant and for at least two of the subsequent four years it is held by the claimant; (b) the asset generating the gain must have been held for at least five uninterrupted years; and (c) the gain must be a long-term gain under the IRC. "Qualified Wisconsin business" and "investment" are defined the same as under the capital gains deferral that immediately precedes this description. This exclusion first applied in tax year 2016. Qualifying gains may not include amounts that were gains deferred as a reinvestment in a qualified Wisconsin business or in a qualified new business venture (a deferral cre- ated in 2009 and first effective in tax year 2011, but sunset after the 2013 tax year).

Prior to tax year 2013, qualifying businesses were certified by the Wisconsin Economic Devel- opment Corporation (WEDC), but are now registered by DOR. Investments in businesses pre- viously certified by WEDC (or its predecessor, the Department of Commerce) continue to qualify for the treatments, provided other conditions are met.

Capital Gains Exclusion for Gains from In- vestment in a Qualified Opportunity Zone. Be- ginning in tax year 2020, a complete exclusion is provided for the amount of gain allowed as a sub- traction under federal law for investments held in a qualified opportunity fund for at least five years. Such a fund must hold at least 90% of its assets in Wisconsin qualified opportunity zone property, as defined under federal law. The amount excluded cannot exceed the taxpayer's aggregate investment in the qualified opportunity fund.

Depreciation. The deduction for depreciation allows taxpayers to recover, over a period of years, the cost of capital assets used in a trade or business or for the production of income. There are several methods used to calculate depreciation under fed- eral law, which depend on the type of property be- ing depreciated and when it was first placed into service. The Modified Accelerated Cost Recovery System (MACRS) rules of depreciation apply to most tangible property placed in service after 1986. Under current federal and state law, tangible depreciable property is generally subject to MACRS.

Since the early 2000s, the federal government has enacted several first-year bonus depreciation deductions that were intended to encourage busi- ness investment and stimulate the national econ- omy. In January of 2013, the American Taxpayer Relief Act of 2012 extended 50% bonus depreciation to 2013 for most types of property or to 2014 for certain property with longer produc- tion periods and aircraft. The basis of the property and the depreciation allowances in the year the property is placed in service and in later years are adjusted to reflect the additional first year bonus depreciation. Under the 2013 legislation, the fed- eral bonus depreciation provisions were scheduled to expire in tax year 2014 for most types of property.

Due to the potential impact on state revenues, the Legislature chose not to conform to the federal bonus depreciation provisions from 2002 through

7 2013. Instead, the Legislature included provisions in 2001 Act 109 that referenced state amortization and depreciation provisions to the federal IRC in effect on December 31, 2000. The Act 109 provi- sion remained in effect until it was modified in 2013 Act 20, wherein the treatment of deprecia- tion was revised to be consistent with federal law in effect on January 1, 2014, for property placed into service on or after that date. The intent of this modification was to federalize the state basis of existing property over a five year period, begin- ning January 1, 2014, following the expiration of federal bonus depreciation at that time.

However, in December of 2014, the President signed the Tax Increase Prevention Act of 2014, which extended 50% bonus depreciation to 2014, or 2015 for certain aircraft and property with longer production periods. Under this legislation, the federal bonus depreciation deduction was scheduled to terminate for most property in tax year 2015 and for all property in 2016. On Decem- ber 18, 2015, the Protecting Americans from Tax Hikes Act of 2015 took effect, which extended 50% bonus depreciation through calendar year 2017 to be phased down over a multiyear period. However, the Tax Cuts and Jobs Act of 2017 (TCJA) increased first-year bonus depreciation from 50% to 100% for qualified property acquired after September 27, 2017, through 2022, with a scheduled phasedown to 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and with repeal thereafter. Further, the TCJA expanded bonus de- preciation to include qualified film, television, and live theatrical productions, and to the purchase of used qualified property purchased at an arms- length transaction (rather than only new qualified property).

State law has not adopted the temporary federal provisions for 50% or 100% bonus depreciation. Because the state depreciation provisions refer to the IRC in effect on January 1, 2014, the bonus depreciation provisions are not available to state taxpayers. For more information on depreciation and on federal and state depreciation provisions, refer to the Legislative Fiscal Bureau's Informational Paper entitled, "Corporate In- come/Franchise Tax."

Disability Income. State taxpayers who meet certain requirements may exclude from gross in- come up to $100 of disability income per week, or $5,200 per year. A corresponding federal provi- sion was repealed in 1983, but the exclusion is re- tained for state tax purposes. In order to qualify for the exclusion, the taxpayer must satisfy several criteria, including: (a) be under the mandatory re- tirement age set in the retirement program offered by the taxpayer's employer; (b) be under age 65; (c) have retired on disability and have been permanently and totally disabled at retirement; and (d) prior to 1984, did not choose to treat the disability income as a pension for tax purposes. The exclusion is reduced dollar-for-dollar for the amount by which the taxpayer's federal AGI ex- ceeds $15,000.

Retirement Income. Beginning in tax year 2009, Wisconsin law allows an exclusion for re- tirement income of up to $5,000 per person aged 65 or older. This treatment is limited to taxpayers with federal AGI less than $15,000 ($30,000 for married-joint filers). The exclusion applies with respect to distributions from qualified retirement plans under the IRC, including distributions from all qualified pension, profit-sharing, and stock bonus plans under the IRC, and from deferred compensation plans offered by state and local gov- ernments and tax-exempt organizations under the IRC. The exclusion also applies to otherwise tax- able distributions from IRAs, self-employed plans, tax-sheltered annuities, and other qualified retirement plans.

Pension Benefits of Certain Public Employ- ees. All pension payments received by taxpayers who were members of, or retired from, certain public pension systems prior to 1964 may be ex- cluded from taxation under state law. In addition, benefits received under the following state and lo- cal retirement systems are eligible for this

8 exclusion: (a) Milwaukee Public School Teachers; (b) Wisconsin State Teachers; (c) Milwaukee City Employees; (d) Milwaukee County Employees; (e) Milwaukee Sheriff; (f) Milwaukee City Police Officers; and (g) Milwaukee Fire Fighters. Fur- ther, railroad retirement benefits are excluded from state taxation under federal law.

Military Pensions. The state provides an in- come tax exclusion for all federal uniformed ser- vices retirement benefits, including benefits to survivors.

Military Pay. Wisconsin law conforms to a federal income tax exclusion for military pay earned while serving in a combat zone. In addition, pursuant to 2021 Act 58, Wisconsin law provides an exclusion for basic, special, and incen- tive pay income (as defined under specified provi- sions of federal law) received from the federal government while on active duty. An exclusion also applies for members of the Wisconsin Re- serves or National Guard who have been mobi- lized by the federal government for special state service or to active duty, but does not apply to pay received by reservists during regular weekend and two-week annual training sessions.

Prior to tax year 2021, active duty members of the U.S. Armed Forces were eligible for a credit of up to $300 (or up to $600 for a married couple if both spouses qualified) for income received as military pay for services performed while sta- tioned outside of the U.S., including tax exempt combat zone income. The credit was sunset and replaced with the federal active duty income ex- clusion after tax year 2020, pursuant to Act 58.

Armed Forces Members Who Die While on Active Duty. Wisconsin provides an exclusion for income received by an individual who is on active duty in the U.S. armed forces, as defined under federal law, and who dies while on active duty if the individual's death occurred while he or she was serving in a combat zone or as a result of wounds, disease, or injury incurred while serving in a combat zone. The exclusion extends to income received by the individual in the year of death and in the year immediately preceding the year of death if the individual has not filed an income tax return for the year before the year of death.

Adoption Expenses. State law allows a deduc- tion for up to $5,000 in aggregate of adoption ex- penses for each child adopted, beginning in tax year 1996. The deduction may be taken during the tax year that a final order of adoption has been en- tered, for adoption expenses incurred in that tax year and the two prior tax years. Allowable ex- penses include adoption fees, court costs, and le- gal fees related to the adoption of a child for whom a final order of adoption is entered.

Federal law does not allow a deduction for adoption expenses. Instead, a nonrefundable tax credit of up to $14,890 in adoption expenses and an exclusion for the employee of up to $14,890 in employer-provided adoption benefits are provided in tax year 2022. Both amounts are subject to phaseout and are indexed for inflation. For tax year 2022, the credit and exclusion phase out for taxpayers with modified AGI (federal AGI plus amounts earned in a foreign country, U.S. posses- sion, or Puerto Rico that are excluded from gross income) between $223,410 and $263,410. Unused credit amounts can be carried forward for up to five years.

Wisconsin Section 529 College Savings Pro- gram. College tuition programs and college sav- ings plans are authorized under Section 529 of the IRC and may be offered by states and private in- stitutions. Under the plans, individuals may establish accounts and make contributions on be- half of beneficiaries who use amounts from the ac- counts to pay for their educational expenses. Ac- count earnings accrue on a tax-free basis, and ac- count withdrawals are tax-free if used to pay for the beneficiary's qualified education expenses. Those expenses generally include tuition, fees, books, supplies, and equipment for the beneficiary to receive undergraduate or graduate instruction at

9 an eligible higher education institution. Beginning in tax year 2018, plans may be used for a benefi- ciary's tuition expenses at an elementary or sec- ondary public, private, or religious school, but such withdrawals are limited to no more than $10,000 annually.

Wisconsin has adopted the federal tax treat- ment with regards to earnings and distributions. Under advisement by the College Savings Pro- gram Board, Wisconsin offers two Section 529 college savings plans, Edvest and Tomorrow's Scholar, through the Department of Financial In- stitutions.

Contributions to the Edvest and Tomorrow's Scholar programs may be deducted for state tax purposes, but not for federal tax purposes. Since tax year 2014, claimants may deduct contributions to the account of any beneficiary, regardless of the claimant's relationship to the beneficiary. For 2022, each claimant's deduction is limited to no more than $3,560 (filing single or joint) or $1,780 (for a divorced parent or if married and filing sep- arately) per beneficiary. The maximum deduction is adjusted annually for inflation.

If an individual rolls over a 529 account from another state into a Wisconsin Edvest or Tomor- row's Scholar account, the principal amount con- tributed into the account may be deducted, but not the earnings in that account, subject to the annual deduction limits. If an individual rolls over a Wisconsin Edvest or Tomorrow's Scholar account into another state's 529 account, the individual must add back to their taxable income any amount that had been previously deducted from tax in Wisconsin.

Contributions in excess of the maximum may be carried forward and deducted in future years, but carryforwards are prohibited if the contribu- tion is withdrawn from an account within one year of the contribution. If any amount is withdrawn from a qualified account and not used for qualified expenses, the amount that was previously deducted must be added back to the income of the claimant and the amount that the claimant can carry forward must be reduced by the amount not used for qualified expenses. If any amount that was previously deducted was withdrawn from a qualified account within one year of its contribu- tion, that amount must also be added back to the income of the claimant.

The Legislative Fiscal Bureau provides more information on these programs in the Informa- tional Paper entitled, "Student Financial Aid."

Higher Education Tuition Expenses. State law allows a deduction from income for tuition ex- penses. The deduction applies to tuition and man- datory student fees paid on behalf of the taxpayer or the taxpayer's dependent. Allowable tuition expenses include tuition paid to attend any univer- sity, college, technical college, or a school ap- proved by the Education Approval Board that is located in Wisconsin or to attend a public voca- tional school or public institution of higher educa- tion in Minnesota under the Minnesota-Wisconsin tuition reciprocity agreement.

For tax year 2022, the maximum deduction per eligible student per year is $6,976. This exclusion may not be claimed if the source of the tuition pay- ment is a withdrawal from a Wisconsin state-spon- sored college savings program or college tuition and expenses program, such as Edvest, provided the contribution to the account was previously claimed as an exclusion from taxable income.

The maximum deduction is phased out in spec- ified ranges of federal AGI that vary with filing status and are indexed for inflation. For tax year 2022, the phase-out ranges are: (a) $60,380 to $72,460 for single and head-of-household filers; (b) $96,600 to $120,760 for married couples filing joint returns; and (c) $48,300 to $60,380 for mar- ried couples filing separate returns.

Private School Tuition Expenses. Beginning in tax year 2014, taxpayers may deduct amounts

10 paid for tuition to a private school for state tax purposes. The deduction is limited to expenses of up to $4,000 per year per pupil enrolled in kindergarten through grade eight and $10,000 per year per pupil enrolled in grades nine through twelve. The pupil must be a dependent of the claimant for federal income tax purposes and be enrolled in kindergarten or grades one through twelve of a private school, as defined in state law, that meets all the criteria for a private school. The deduction is disallowed if the tuition expenses are paid using a distribution from a 529 account.

Long-Term Care Insurance. Premium costs paid by taxpayers for long-term care insurance for the taxpayer and his or her spouse are deductible from income for state tax purposes. This provision took effect in tax year 1998.

Grants for Doctors in Underserved Areas. Physicians and psychiatrists may exclude income from the state's primary care and psychiatry short- age grant program. The program provides grants administered by the Higher Educational Aids Board to new graduates of a graduate medical education training program in Wisconsin who practice primary care medicine or psychiatry in underserved areas of Wisconsin.

Qualified ABLE Accounts. Under federal law, a qualified Achieving a Better Life Experience (ABLE) program may be established by any state for the purpose of meeting the qualified disability expenses of a designated beneficiary, generally an individual whose blindness or disability occurred before age 26. In general, federal law permits up to $16,000 of contributions (total from all contrib- utors) in tax year 2022 to be deposited in an ABLE account per designated beneficiary per calendar year. The maximum annual contribution limit is indexed to adjustments made to the annual exclu- sion amount under the federal gift tax.

For tax years 2018 through 2025, the TCJA in- creases the annual contribution limit for certain beneficiaries by an amount equal to the lesser of the beneficiary's compensation or the federal pov- erty line for a one-person household ($12,880 in 2022), provided the general contribution limit has been reached and the account's beneficiary makes the additional contribution. As a result, the maxi- mum contribution limit for these beneficiaries is $28,880 in tax year 2022.

Earnings generated from after-tax contribu- tions into an ABLE account that are distributed and used for qualified expenses are not subject to tax, provided those distributions do not exceed qualified disability expenses of the designated beneficiary. Distributions made from an ABLE account that are not used for qualified disability expenses must be included as gross income of the recipient and are subject to a 10% penalty on the amount of the ineligible distribution.

Wisconsin has adopted the federal tax treat- ment of ABLE accounts and allows a state deduc- tion for any eligible contribution deposited by an account owner, or any other person, for the year in which a contribution is made into any state's federally qualified ABLE account. Additional contributions by beneficiaries authorized under the TCJA are included under the deduction. Wis- consin does not operate an ABLE program, but state residents can deduct contributions made to programs operated by other states.

Standard Deduction

Taxable income, the amount of income that is actually subject to tax, is computed by subtracting the sliding scale standard deduction and personal exemptions from Wisconsin AGI. The sliding scale standard deduction is based on formulas that vary by filing status and that phase out the deduction over certain AGI thresholds.

As shown in Table 1, for 2022, a single tax- payer with Wisconsin AGI less than $16,990 has a standard deduction of $11,790; for single tax- payers with AGI in excess of $115,240, no standard deduction is provided. Married taxpayers

11 filing a joint return with AGI less than $24,520 have a standard deduction of $21,820; if their AGI is greater than $134,845, no standard deduction is available. Married taxpayers filing separate re- turns have a standard deduction of $10,370 if their AGI is less than $11,640; if their AGI is greater than $64,072, no standard deduction is provided. Head-of-household taxpayers with AGI of less than $16,990 may claim a standard deduction of $15,230; no deduction is allowed if income ex- ceeds $115,240. Table 1 also provides an example of how the deduction is calculated in tax year 2022 for a hypothetical married-joint filer with Wiscon- sin AGI of $75,000.

Since tax year 1999, the dollar amounts used in the standard deduction (and tax brackets) have been indexed for annual changes in inflation, rounded to the nearest $10. However, no indexing adjustment was made to the standard deduction in 2000 because it was increased statutorily. The statutory increase provided a larger standard deduction than would have resulted under indexing. Indexing adjustments resumed with tax year 2001. After a negative adjustment occurred for tax year 2010, a provision was included in 2009 Act 28 to limit future adjustments to no less than 0.0%. For tax year 2022, the indexing adjust- ment is 5.3%. For tax year 2023, the indexing ad- justment is 8.3%.

Personal Exemptions

Personal exemptions are subtracted from Wisconsin AGI, along with the standard deduc- tion, to arrive at taxable income. A $700 personal exemption is provided for each taxpayer, the tax- payer's spouse, and for each individual claimed as a dependent.

An additional $250 exemption is provided for each taxpayer who has reached the age of 65 be- fore the end of the tax year (two exemptions are provided if both the taxpayer and the taxpayer's spouse are 65 at the end of the year). Thus, for each taxpayer age 65 or over, the total exemption Table 1: Sliding Scale Standard Deduction (Tax Year 2022)

Marital Status Wisconsin AGI Standard Deduction

Single Less than $16,990 $11,790

$16,990 to $115,240 $11,790-12.0% (WAGI-$16,990)

Greater than $115,240 $0

Married, Less than $24,520 $21,820 Joint $24,520 to $134,845 $21,820-19.778% (WAGI-$24,520)

Greater than $134,845 $0

Married, Less than $11,640 $10,370 Separate $11,640 to $64,072 $10,370-19.778% (WAGI-$11,640)

Greater than $64,072 $0

Head-of- Less than $16,990 $15,230 Household $16,990 to $49,705 $15,230-22.515% (WAGI-$16,990)

Greater than $49,705 Single Standard Deduction

Example: Married-Joint Filer with WAGI of $75,000

SSSD = $21,820 - 19.778% * (WAGI - $24,520)

SSSD = $21,820 - 19.778% * ($75,000 - $24,520)

SSSD = $21,820 - 19.778% * ($50,480)

SSSD = $21,820 - $9,984

SSSD = $11,836

12 is $950. These personal exemption amounts have been in effect since tax year 2001.

Tax Rates and Brackets

State law establishes four tax brackets and as- signs a marginal tax rate to each bracket. The brackets vary by filing status, and each tax bracket spans a range of taxable income. The brackets have been adjusted for inflation since tax year 1999 in the same manner as the standard deduc- tion. Each marginal tax rate applies only to income that falls within the corresponding bracket, and a taxpayer's gross tax is the cumulative total tax from each applicable bracket. For example, for married taxpayers filing jointly in 2022, the first $17,010 of taxable income is taxed at 3.54%, the next $17,020 is taxed at 4.65%, the next $340,570 is taxed at 5.30%, and taxable income in excess of $374,600 is taxed at 7.65%. Pursuant to 2021 Act 58, the tax rate in the third bracket is reduced from 6.27% to 5.30%, beginning in tax year 2021.

Table 2 shows the tax rate and bracket schedules for tax year 2022. Tax tables prepared by DOR simplify the tax calculation process by al- lowing taxpayers to look up their taxable income and find the gross tax amount that corresponds to that income level. Nonrefundable Tax Credits

Wisconsin provides several nonrefundable tax credits that may be subtracted from gross tax lia- bility to arrive at Wisconsin net tax. Credits reduce a claimant's tax liability dollar for dollar, whereas deductions reduce the amount of income subject to tax. The following individual income tax credits available in tax year 2022 are nonrefundable; thus, such credits can be used to reduce net tax liability to zero, but the amount of the credit may not ex- ceed tax liability.

Married Couple Tax Credit. Two-earner families filing married-joint are eligible for a mar- ried couple credit equal to 3.0% of the earned in- come of the secondary wage earner, up to a maximum credit of $480. The credit maximum has been in effect since tax year 2001.

Earned income is defined as taxable wages, salaries, tips, scholarships or fellowships, disabil- ity income treated as wages, other compensation, and net earnings from self-employment, reduced by certain amounts allowed as adjustments to gross income, such as qualified contributions to IRAs and self-employment retirement plans.

Table 2: Tax Rates and Brackets (Tax Year 2022)

Gross Tax is Amount Below,

Taxable Income Plus Tax Rate Percent Listed Filing Over But Not Applied to Amount of Income Status

Over in Excess of First Column

Single, $--- $12,760 $--- 3.54% Head-of- 12,760 25,520 452 4.65 Household 25,520 280,950 1,045 5.30

280,950 and over 14,583 7.65

Married, $--- $17,010 $--- 3.54% Joint 17,010 34,030 602 4.65

34,030 374,600 1,394 5.30

374,600 and over 19,444 7.65

Married, $--- $8,510 $--- 3.54% Separate 8,510 17,010 301 4.65

17,010 187,300 697 5.30

187,300 and over 9,722 7.65

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Itemized Deduction Tax Credit. If allowable itemized deductions exceed the sliding scale standard deduction, the excess amount is eligible for a tax credit of 5%. Allowable expenses for cal- culating the state credit generally conform to the expenses permitted as federal itemized deduc- tions. These include: (a) charitable contributions; (b) medical and dental expenses exceeding 7.5% of federal AGI; (c) interest expenses for a princi- pal residence or a second home in Wisconsin, in- cluding interest expenses for a seller-financed mortgage; (d) other interest expenses, except per- sonal interest; and (e) casualty losses that are directly related to a federally declared disaster. Federal law also permits certain deductions for state and local taxes, mortgage insurance premi- ums, and certain miscellaneous expenses. These federal deductions are not allowed for purposes of computing the state's itemized deduction tax credit. Individuals who claim the federal standard deduction, and do not itemize deductions, may claim the state credit based on the amounts that would be deductible if the taxpayer itemized.

Property Tax/Rent Credit. The property tax/ rent credit (PTRC) is equal to 12% of property taxes, or rent constituting property taxes, paid on a principal residence up to a maximum of $2,500 in property taxes. Since tax year 2000, the maximum credit is $300. Rent constituting prop- erty taxes is defined as 25% of actual rent if pay- ment for heat is not included in rent or 20% of actual rent if payment for heat is included in rent.

Working Families Tax Credit. Beginning in tax year 1998, taxpayers with Wisconsin AGI be- low $9,000 ($18,000 if married-joint) may claim a credit equal to their net tax liability. The credit phases out over the next $1,000 in income until eliminated when AGI exceeds $10,000 ($19,000 if married joint). The credit eliminates state income taxes for single taxpayers with AGI below $9,000 and married couples filing joint returns with AGI below $18,000. This credit is claimed by very few taxpayers because most individuals and families at these income levels do not have a net tax liability due to the standard deduction, personal exemp- tions, and other credits.

Other State Tax Credit. A credit for taxes paid to other states is available to taxpayers who are Wisconsin residents and who paid tax on the same income both to Wisconsin and to another state, in- cluding the District of Columbia. The credit is equal to the amount of tax paid to the other state on the same income that is subject to Wisconsin taxation, but the amount of the credit is limited to the amount of net tax that would be paid if the in- come was taxed under the Wisconsin individual income tax. This limitation does not apply to in- come of Wisconsin residents that is taxed in the four surrounding states. Taxpayers may not use the same income to claim both the credit for taxes paid to other states and the manufacturing and ag- riculture credit.

Credit for Child and Dependent Care Ex- penses. Prior to tax year 2022, expenses related to child and dependent care were deductible from in- come for state tax purposes, up to $3,000 for one qualified individual and up to $6,000 for more than one qualified individual, based on the ex- penses claimed for purposes of the federal credit. Beginning in tax year 2022, the deduction was re- placed under 2021 Act 58 with a credit equal to 50% of the federal credit for child and dependent care expenses.

Federal law provides an individual income tax credit for child and dependent care expenses that are paid for the purpose of enabling a taxpayer to be gainfully employed. The maximum amount of expenses that can be claimed for the federal credit is $3,000 if the claimant has one qualifying child (under the age of 13) or dependent (generally an individual who was physically or mentally unable to care for himself or herself) and $6,000 if the claimant has more than one qualifying child and/or dependent. The credit is calculated as a percentage of eligible expenses, with the percentage ranging from 35% to 20%, depending on the claimant's federal AGI. Eligible expenses are reduced dollar-

14 for-dollar for any amounts excluded as dependent care assistance benefits under separate provisions of state and federal law.

The state credit acts as a supplement to the fed- eral credit and reimburses between 10% and 17.5% of the claimant's eligible expenses. To- gether, the state and federal credits reimburse be- tween 30% and 52.5% of the first $3,000 (or $6,000 if two or more qualifying children or de- pendents) of eligible expenses.

State Historic Rehabilitation Credit. A 25% income tax credit is available to natural persons for expenditures for the preservation or rehabilitation of eligible historic property. Since August of tax year 1988, the maximum tax credit is $10,000 per project for any preservation or re- habilitation project (maximum eligible expendi- tures of $40,000 per project). A taxpayer may claim credits for multiple projects on the same property, provided each individual project meets the expenditure criteria. The property must be an owner-occupied personal residence, and cannot be actively used in a trade or business or be held for the production of income or sale in the course of the taxpayer's trade or business. In order to qualify for the credit, rehabilitation expenses must exceed $10,000 and the taxpayer cannot claim the state supplement to the federal historic rehabilitation credit for those expenses (see "Nonrefundable Business Tax Credits"). If any portion of the credit exceeds a taxpayer's income tax liability in that year, the unused credit amount can be carried for- ward and used in the following 15 taxable years. The taxpayer must repay all or a portion of the credit if the property is sold or its historic features altered within five years.

Angel Investment Tax Credit. The angel investment tax credit equals 25% of the claimant's bona fide angel investment made directly in a qualified new business venture (QNBV) for the tax year. With the early stage seed investment tax credit, the angel investment tax credit is adminis- tered jointly by DOR and WEDC.

The aggregate amount of investment in any one QNBV that may qualify for angel investment or early stage seed investment tax credits is $12.0 million. Investments in a QNBV must be main- tained in the business by an angel investor, angel investment network, or certified fund manager for at least three years.

WEDC certifies fund managers and businesses to participate in the program, and, in order to re- ceive tax credits based on eligible investments, angel investors, angel investor networks, and venture capital funds must follow a verification process administered by WEDC. The maximum aggregate amount of angel and early stage seed investment tax credits that WEDC can verify to be claimed per calendar year is $30 million.

Additional information on the angel invest- ment credit and the early stage seed investment credit is included in the Legislative Fiscal Bu- reau's Informational Paper entitled, "Business Tax Credits."

Nonrefundable Business Tax Credits. There are several nonrefundable business tax credits that are provided under both the state individual in- come tax and the state corporate income/franchise tax. The credits listed below are described in the Legislative Fiscal Bureau's Informational Paper entitled "Business Tax Credits".

- Community Rehabilitation Program - Early Stage Seed Investment - Employee College Savings Account Contribution - Insurance Security Fund Assessment - Low-Income Housing - Manufacturing and Agriculture - Manufacturing Investment - Nonrefundable Research - Supplement to the Federal Historic Rehabilitation

Refundable Tax Credits

Wisconsin offers the following refundable tax credits to individuals in tax year 2022. Unlike non- refundable credits, if the amount of a refundable credit exceeds the claimant's tax liability, a check

15 is issued to the claimant for the difference.

Earned Income Tax Credit. The earned in- come tax credit (EITC) is offered at both the fed- eral and state levels as a means of providing assis- tance to lower-income workers. The state EITC is calculated as a percentage of the federal credit. The state uses federal definitions and eligibility requirements for purposes of the EITC, except that the state does not provide a credit to individuals without children. Table 3 reports the maximum credit amounts for tax year 2022 under the federal and state credits. More detailed information on the EITC can be found in the Legislative Fiscal Bureau's Informational Paper entitled, "Earned Income Tax Credit."

Homestead Credit. A refundable homestead credit may be claimed by taxpayers if certain in- come and property tax/rent requirements are ful- filled. The credit is limited to households with an- nual income of not more than $24,680. The in- come measure used, called household income, includes income that is taxable for Wisconsin in- come tax purposes and most types of nontaxable cash income. The first $1,460 of the property tax bill is considered in determining the amount of the credit for homeowners. For renters, 25% of rent, (or 20% if heat is included) is considered, up to a maximum of $1,460 annually. The amount of credit is determined by a formula, whose factors were last indexed for inflation in tax year 2010. Households with incomes below $8,060 receive the maximum relief (80% of eligible property taxes). As income exceeds $8,060, the credit is re- duced. The maximum credit is $1,168.

More detailed information on the homestead credit is presented in the Legislative Fiscal Bureau's Informational Paper entitled, "Home- stead Tax Credit."

Veterans Property Tax Credit. Wisconsin pro- vides a refundable credit against the individual in- come tax for property taxes paid by certain veterans with a 100% disability rating and eligible unremarried surviving spouses. The tax credit is equal to 100% of the real and personal property taxes paid on a principal dwelling by an eligible veteran or their spouse, or by an eligible unremar- ried surviving spouse. The credit is not affected by the taxpayer's AGI, but is not allowed if an indi- vidual or the individual's spouse files a claim for the PTRC, the farmland preservation credit, or the homestead credit in the same tax year.

More detailed information on the veterans property tax credit is presented in the Legislative Fiscal Bureau's Informational Paper entitled, "Veterans and Surviving Spouses Property Tax Credit."

Repayment Credit. A refundable credit is pro- vided if a taxpayer must repay income on which taxes were paid in the prior tax year. The credit may be claimed if the income repaid is greater than $3,000 and the repayment amount is not sub- tracted from federal AGI or used in calculating the itemized deduction tax credit.

Refundable Business Tax Credits. There are several refundable business tax credits that are provided under both the state individual income tax and the state corporate income/franchise tax. The credits listed below are described in the Leg- islative Fiscal Bureau's Informational Paper enti- tled "Business Tax Credits". - Business Development - Electronics and Information Technology Manufacturing Zone (Foxconn) - Enterprise Zone - Farmland Preservation - Jobs - Refundable Research Table 3: Maximum Federal and State Earned Income Tax Credit Amounts (Tax Year 2022)

No One Two Three or More

Children Child Children Children

Federal EITC $560 $3,733 $6,164 $6,935 State EITC N.A. 149 678 2,358

16

Reckless and Fraudulent Claims. Beginning in tax year 2013, a person who files a fraudulent claim for a refundable tax credit cannot claim a credit for ten successive tax years and a person who files a reckless claim cannot claim a refunda- ble credit for two successive tax years. For tax year 2022, refundable credits available under the individual income tax are: (a) earned income; (b) homestead; (c) veterans property; (d) repayment; (e) farmland preservation; (f) enterprise zone; (g) business development; (h) jobs; (i) electronics and information technology manufacturing zone; and (j) refundable research. A "fraudulent claim" is a claim that is false or excessive and filed with fraudulent intent. A "reckless claim" is a claim that is improper due to reckless or intentional disregard of the provisions related to the credit in state stat- utes, rules, and regulations. DOR has the authority to determine what is fraudulent or reckless.

The prohibition from filing a refundable credit claim begins with the tax year beginning immedi- ately after the year for which DOR determines that an individual has filed the fraudulent or reckless claim. After the period for which a person has been prohibited from filing a claim expires, an in- dividual filing a claim is subject to any require- ments that DOR may impose to demonstrate eligibility for the credit.

In 2021-22, DOR determined that: (a) 65 EITC claims were reckless and disallowed $98,244 of associated credits; (b) two EITC claims were fraudulent and disallowed $1,251 of related cred- its; and (c) three homestead claims were reckless and disallowed $1,292 of credits. No homestead credits were determined to have been filed fraud- ulently, and no other refundable credit claims were determined to be reckless or fraudulent, in 2021- 22.

Since the provisions governing fraudulent and reckless claims were implemented, one claim for the veterans property tax credit was deemed reck- less in 2014-15. All other refundable credit claims determined to be reckless or fraudulent were filed either for the homestead credit or the EITC.

Tax on Pass-Through Entities

Tax-option (S) corporations, partnerships, and limited liability companies (LLCs) are not subject to the corporate income/franchise tax, but pass through their business income or losses to their shareholders, partners, and members, thereby subjecting the income to tax under the individual income tax. These businesses are collectively referred to as pass-through entities. Prior to 2017 Act 368, state law generally required pass-through entities to have the same tax classification for state tax purposes as for federal tax purposes.

Act 368 allows pass-through entities to be taxed at the entity level for state tax purposes at a rate of 7.9%, even if the entity's federal income flows through to its shareholders, partners, or members under the federal individual income tax. When a pass-through entity elects to be taxed at the entity level, the Act's stated intent is to allow the entity's shareholders, partners, or members to not include in their Wisconsin AGI their proportionate share of all items of income, gain, loss, or deduction of the pass-through entity. Instead, the Act's intent is that the pass-through entity pay tax on items that would otherwise be subject to the individual income tax if this election were not made. In doing so, such taxpayers are able to deduct state and local taxes (the "SALT" deduction) on pass-through income without the limitation that applies to individual filers that itemize deductions under federal law (which prevents individuals from deducting more than $10,000 of state and local taxes). If the value of the SALT deduction (effectively, the federal tax rate multiplied by the amount deducted) exceeds the increased cost of the higher state corporate tax rate, it makes economic sense for certain tax filers to consider paying at the entity level.

Persons holding more than 50% of the shares, or 50% of the capital and profits in a partnership, must consent to be taxed at the entity level, and the

17 election must occur on or before the due date, or extended due date, for filing the entity's tax return. Pass-through entities taxed at the entity level may claim the credit for taxes paid to other states, but are not eligible to claim other state tax credits. Instead, those credits may pass through to the entity's shareholders, partners, or members to be claimed on their individual income tax returns, as under current law. Losses carried forward from prior years, or carried backwards, cannot be used to offset income of a pass-through entity that elects to be taxed at the entity level.

Under 2021 Act 2, the 30% exclusion for net long-term capital gains (and the 60% exclusion for such gains on farm assets) is extended to S corporations electing to pay tax at the entity level, as is the annual capital loss limitation of $500 (this limitation is increased to $3,000 beginning in tax year 2023 under Act 157). Act 2 also stipulates that the exemption from underpayment interest applicable to S corporations having net income below $250,000 does not apply to S corporations that elect to pay tax at the entity level.

2021 Act 262 enables DOR to audit, assess additional tax, and issue refunds to a pass-through entity entirely at the entity level on income otherwise reportable by individual members. This treatment applies regardless of whether the entity elects to file at the entity level.

The election to be taxed at the entity level was first available to S corporations beginning in tax year 2018, and partnerships beginning in tax year 2019. Based upon final payments made by part- nerships in tax year 2021 and estimated payments collected from S corporations through September, 2022, it is estimated that pass through entity filers paid approximately $800 million in 2021-22. DOR reports these revenues as corporate in- come/franchise tax collections. Summary of Features of the Individual Income Tax

The major features in the calculation of federal and Wisconsin individual income taxes for 2022 are illustrated in Chart 1, which shows the steps necessary to determine tax liability under federal and state law, including the following major com- ponents: AGI, deductions, exemptions, tax rates and brackets, and tax credits.

Additional Differences Between State and Federal Income Tax Structures

The federal income tax structure differs from Wisconsin's tax structure in several ways. The major differences in the definition of AGI have been described previously. This section highlights additional areas of difference.

AGI is reduced by deductions and exemptions to calculate taxable income. For federal tax purposes, individuals may claim a standard deduction or may itemize deductions.

The TCJA temporarily increased the standard deduction for tax years 2018 through 2025, setting the 2022 deduction at $25,900 for married joint fil- ers, $19,400 for head-of-household filers, and $12,950 for single individuals and married indi- viduals filing separately. For each taxpayer and/or spouse who is blind and/or 65 years of age or older, those amounts may be increased by $1,400 per spouse if married and $1,750 if single or head- of-household.

Federal taxpayers may choose to itemize when their deductions, in aggregate, exceed their

18 Federal AGI Wisconsin Taxable Income Result Gross Income Wisconsin AGI Wisconsin Gross Tax Wisconsin Net Tax Wisconsin Total Tax Federal Total Tax Gross Tax Including Minimum Tax Federal Gross Tax Federal Taxable Income CHART 1

Major Components in the Calculation of Federal and Wisconsin Income Taxes Tax Year 2022

Computation Compute Gross Income Subtract from Gross Income Deductions (Standard, Itemized, Qualified Bus. Income) Standard Deduction & Exemptions Tax Rates 3.54% to 7.65% Nonrefundable Credits Refundable Credits Tax Credits Minimum Tax Tax Rates 10% to 37% • Itemized deduction • Property tax/rent • Married couple • Child and dependent care expenses • Business • Other credits • Foreign tax • Child & dependent care • Education • Retirement savings contributions • $2,000 per child • Residential energy • General business • Prior year minimum tax • Earned income • American Opportunity (tuition) • Premium (health insurance) • Self-employment tax and health insurance • Contributions to retirement accounts and HSAs • Student loan interest • Alimony paid • Penalty on early withdrawal of savings • Business expense of reservists, performing artists, and fee-basis government officials

• Wages, salaries, tips • Interest and dividends • Alimony received • Business and capital gains/losses • Pensions and annuities • Rents, royalties, partnership income • Farm income and losses • Unemployment compensation • Portion of social security Apply Wisconsin Modifications Add to federal AGI: • Taxable state and municipal bond interest • Capital loss exceeding $500 (federal treatment adopted beginning in tax year 2023) • Other additions Subtract from federal AGI: • Federal/certain state bond interest • Capital gains exclusions • Unemployment compensation • Disability income • Pension exclusions • Social security benefits • Adoption expenses • Edvest college savings program contributions • Long-term care insurance premiums • Higher education tuition expenses • Organ donor expenses • Certain health insurance premiums • Certain active duty military pay • AmeriCorps Awards • Income subject to entity-level tax • Other subtractions

• Homestead • Earned income • Veterans/spouse property tax • Repayment • Business

19 standard deduction. Itemized deductions include medical and dental expenses, state and local taxes, other taxes, interest payments, charitable gifts, casualty and theft losses from a federally declared disaster, and other specified amounts. Various limitations apply to the deductions, such as the $10,000 limitation ($5,000 if married filing sepa- rately) on the amount of state and local taxes that may be deducted in a year. Following the TCJA, the increase in the standard deduction combined with the state and local tax limitation were ex- pected to increase the number of taxpayers claim- ing the standard deduction and reduce those who itemize. Nationwide, the percentage of taxpayers choosing to itemize deductions on their federal re- turn declined from 31% in tax year 2017 to 11% in tax year 2019. In Wisconsin, the percentage of taxpayers who itemize declined from 32% to 8% between tax years 2017 and 2019.

For state tax purposes, Wisconsin offers a slid- ing scale standard deduction and does not allow taxpayers to itemize deductions. Compared to the federal standard deduction, Wisconsin's maximum deduction amounts in 2022 - $21,820 for married joint filers, $15,230 for head-of-household filers, $11,790 for single filers, and $10,370 for married separate filers - are somewhat lower. Also, the Wisconsin amounts phase out for higher income taxpayers, while the federal amounts do not. Both the federal and state deductions are subject to indexing for inflation.

Although Wisconsin does not allow taxpayers to itemize deductions, their federal itemized de- ductions may be used to claim the state's itemized deduction tax credit. However, the state credit is limited to the federal deductions for medical and dental expenses, charitable contributions, interest expenses, and casualty losses, to the extent those deductions exceed the taxpayer's state sliding scale standard deduction. The excess amount is multiplied by 5% to calculate the credit. Individu- als who claim the federal standard deduction and do not itemize deductions may claim the state credit based on the amounts that would be deductible if the taxpayer itemized.

Although no adjustment based on sight or age is made to the state's sliding scale standard deduc- tion, an adjustment for persons age 65 or over is part of the state personal exemption. Wisconsin's personal exemption is $700 for each taxpayer, spouse, and dependent, plus an additional $250 for persons age 65 or over. Prior to tax year 2018, personal exemptions were available for federal tax purposes, but the TCJA suspended personal ex- emptions for tax years 2018 through 2025. Prior to its suspension, the federal exemption was subject to a high-income phaseout. Personal exemptions adjust the amount of income subject to tax to re- flect differences in family sizes between taxpay- ers. Although the federal exemptions have been temporarily suspended, the TCJA expands the fed- eral child tax credit. As a result, the federal tax system continues to provide adjustments to recognize taxpayer differences in family sizes.

A federal deduction for qualified business in- come is provided for tax years 2018 through 2025. The deduction is limited to pass-through business income of sole proprietorships, general partner- ships, limited partnerships, and S corporations not taxed under the corporate income tax. The deduction equals 20% of the pass-through income. For individuals engaged in certain service businesses and/or that have taxable income above a specified threshold, the deduction is subject to phaseout and limitation.

For federal and state tax purposes, taxable in- come is taxed at marginal tax rates based on tax brackets. Income that falls within each bracket is subject to tax at the rate assigned to that bracket. Under federal law, separate tax bracket schedules are used to differentiate the tax liabilities of single persons, married persons filing jointly, married persons filing separately, and heads of households. For state tax purposes, income of single and head- of-household filers is subject to the same tax bracket schedule. Both the federal and state tax brackets are indexed to reflect inflation.

20

For tax year 2022, federal marginal tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%, and Wisconsin's marginal tax rates are 3.54%, 4.65%, 5.30%, and 7.65%. However, Wisconsin's top effective marginal tax rate may exceed 7.65% for taxpayers in the phase-out range of the state's sliding scale standard deduction.

For federal tax purposes, the alternative mini- mum tax (AMT) is a means to ensure that at least a minimum amount of income tax is paid by indi- viduals who have a large tax savings from the use of certain tax deductions and exclusions. The AMT was a component of both the federal and state individual income tax systems. However, the state AMT, which had been imposed in various forms since 1981, was sunset after tax year 2018.

A taxpayer's federal AMT is calculated by first determining alternative minimum taxable income (AMTI), subtracting any allowable exemption, and applying the AMT rate. The base for compu- ting AMTI is regular taxable income, to which adjustments and tax preference items are added (or recaptured). Exemptions are provided as an offset to AMTI, reducing the amount of income subject to tax, and vary by filing status. Finally, the tax- payer's AMT liability is compared to the taxpay- er's regular tax liability. If the AMT liability exceeds the regular tax amount, an AMT is owed equal to the difference. All credits are applied as offsets both to regular tax and AMT.

At the federal level, capital gains are generally taxable regardless of how long the assets were held. However, separate tax rates apply to net cap- ital gains, defined as the net long-term capital gain in a year offset by any net short-term capital loss for that year. Any net capital gain that would oth- erwise be taxed at the 10% or 12% rates is gener- ally not subject to tax. If the gain would otherwise be taxed at the 22%, 24%, 32%, or 35% tax rates, the net capital gain is generally taxed at 15%. Net capital gains that would otherwise be taxed at the 37% rate are generally taxed at 20%.

This preferential tax treatment for net capital gains is implemented through the use of "break- points," which are based on the income thresholds for the federal marginal tax rates and are indexed for inflation. For tax year 2022, the 15% break- point is $83,350 for married joint filers, $55,800 for head-of-household filers, and $41,675 for sin- gle and married separate filers. The 20% break- point is $517,200 for married joint filers, $488,500 for head-of-household filers, $459,750 for single filers, and $258,600 for married separate filers.

Under both federal rate structures, higher max- imum tax rates apply to gains from certain types of assets, such as coins, art, antiques, and other collectibles (28%) and qualified small business stock (28%, although 50% or more of the gain is excluded from the taxpayer's gross income, depending on when the stock was acquired).

Under federal law, ordinary dividends received from corporations are included in gross income. However, qualified dividends received are taxed under capital gains tax rates if the investor holds the stock from which the dividend is paid for more than 60 days in the 121-day period beginning 60 days before the date following the date on which the corporation finalizes the list of shareholders who will receive the dividend. Dividends paid by certain financial institutions are not eligible for the lower tax rate. Wisconsin does not provide a lower maximum tax rate for capital gains or dividends. However, state law does provide an income tax ex- clusion for 60% of net capital gains on farm assets and 30% of net capital gains on other assets, if the assets have been held for more than one year. In addition, gains realized on the sale of a business to a family member and long-term gains reinvested in qualified Wisconsin businesses or certain Wis- consin qualified opportunity funds may be de- ferred or excluded from taxation.

In response to the economic impact of the COVID-19 pandemic, the federal government provided a series of stimulus rebates to eligible taxpayers. The rebates were considered advanced

21 payment of a refundable credit for tax year 2020 or 2021. Each rebate was subject to an income- based phaseout, but no rebate was considered tax- able income under either state or federal law. Wis- consin did not provide a comparable rebate to state taxpayers during the pandemic. However, it was estimated at the time of the rebates' disbursement that $13.59 billion of total federal rebates were provided to over 2.5 million Wisconsin resident taxpayers.

For tax year 2021 only, the federal American Rescue Plan Act of 2021 (ARPA) increased the federal child tax credit to $3,000 per qualifying child (and expanded the credit to include each child who had reached age 17), or $3,600 per child who had not attained the age of six by the end of calendar year 2021. Previously, the credit equaled $2,000 for each qualifying child under age 17, or $500 for other qualifying dependents. The ex- panded credit under ARPA was made fully refund- able for 2021 (previously only a portion of the credit was refundable), but it phased out over a lower range of incomes than the previously estab- lished credit. However, the expanded credit could not be less than what the claimant would have received had the pre-2021 provisions applied. In addition, the Internal Revenue Service issued ad- vanced monthly payments of the credit between July, 2021, and December, 2021, equal to half the agency's estimate of the expanded credit for which the claimant would be eligible. The remaining credit amount could be claimed when the claimant filed their federal income tax return for tax year 2021. Beginning in tax year 2022, the federal child tax credit reverted to the provisions which had been in place prior to tax year 2021.

Wisconsin does not provide a similar child tax credit under its individual income tax. However, it was estimated around the time of the expanded federal credit's implementation that 599,100 Wis- consin resident tax filers received $3.17 billion in federal child tax credits in tax year 2021.

ARPA also expanded the federal child and dependent care expenses credit, for tax year 2021 only, by increasing the maximum creditable ex- penses from $3,000 to $8,000 for claimants with one qualifying dependent, and from $6,000 to $16,000 for claimants with two or more qualifying dependents. In addition, ARPA raised the maxi- mum reimbursement percentage from 35% to 50%, and increased the federal AGI level at which the percentage began to phase down from $15,000 to $125,000. As a result of these expanded param- eters, the maximum credit for tax year 2021 was increased for claimants under the initial phaseout income with one qualifying dependent from $1,050 to $4,000, and for such claimants with two or more qualifying dependents from $2,100 to $8,000. In addition, the credit was made refunda- ble for U.S. resident taxpayers. Although Wiscon- sin did adopt a nonrefundable state credit equal to 50% of the federal child and dependent care ex- penses credit, it was not established until tax year 2022. Therefore, Wisconsin did not conform to these temporarily expanded federal credit provi- sions.

ARPA provided that: (a) forgiven student loans expressly provided for postsecondary education and meeting certain other requirements are ex- cluded from taxable income for tax years 2021 through 2025; (b) certain health insurance pre- mium assistance received between April 1, 2021, and September 30, 2021, is excluded from taxable income; and (c) the exclusion for dependent care assistance benefits is increased from $5,000 to $10,500 for tax year 2021 only. Wisconsin has not adopted these provisions of ARPA.

Historical Tax Collections Information

The annual amount of individual income taxes collected since 2011-12, the percentage change from year to year, and the share that individual income taxes comprised of state general fund tax revenues are shown in Table 4. Over the 11-year

22 period, individual income tax collections com- prised more than half of total general fund tax col- lections every year until 2019-20, and ranged from a low of 44.8% in 2021-22 to a high of 53.2% in 2012-13.

Over the 11-year period, changes in tax collec- tions were influenced by economic factors and law changes. The economic recovery following the Great Recession of 2007-09 was accompanied by collection increases of 5.1% in 2011-12 and 6.5% in 2012-13. Tax decreases enacted for tax years 2013 and 2014, and an accompanying withholding table change beginning in April of 2014, explain the collection decrease of 5.8% in 2013-14 and the succeeding year's modest increase, 3.7% in 2014- 15. Collection increases of 5.7% in 2015-16, 3.9% in 2016-17, 5.5% in 2017-18, and 6.1% in 2018- 19 reflected continued economic growth as the post-recession recovery became the longest eco- nomic expansion in American history, prior to the COVID-19 pandemic. The sharp economic con- traction caused by the pandemic, together with in- dividual income tax rate reductions included in 2019 Acts 9 and 10, help explain the decline in collections in 2019-20. Significant federal fiscal stimulus (such as enhanced unemployment com- pensation) contributed to the rebound in collec- tions in 2020-21. Further tax rate reductions be- ginning in tax year 2021 enacted in 2021 Act 58, and a corresponding withholding table update ef- fective January 1, 2022, contributed to negative annual collections growth in 2021-22. The elec- tion by pass-through entities to file and pay tax at the entity level under the corporate income/fran- chise tax, rather than under the individual income tax, helps explain the continued decline in indi- vidual income tax collections as a percentage of overall general fund taxes since 2017-18.

In tax year 2022, 42 states and the District of Columbia had an individual income tax. For information on individual income taxes in other states, please refer to the Legislative Fiscal Bu- reau's Informational Paper entitled, "Individual Income Tax Provisions in the States."

Distributional Information for Tax Year 2020

Aggregate data from individual income tax re- turns filed for tax year 2020 are shown in Tables 5 through 9. Table 5 presents summary statistics on the count of returns, the income, deductions, and tax credits claimed, and the amount of tax paid.

The distribution of tax filers by Wisconsin AGI class is shown in Table 6. For tax year 2020, 3.1 Table 5: Aggregate Data on State Individual Income Tax Returns (Tax Year 2020) Count -- All Returns 3,145,544

Wis. Adj. Gross Income $194,692,444,362 Amount of Positive AGI 196,687,648,958 Used Deductions & Exemptions 25,526,000,655 Taxable Income 171,161,648,303 Gross Tax 9,968,645,079 Used Credits 1,656,672,772 Net Tax 8,311,972,307

Avg Tax Rate (Net Tax/Tax. Inc.) 4.86% Avg Eff Tax Rate (Net Tax/AGI) 4.27%

Source: 2020 Individual Income Tax Aggregate Data Table 4: Individual Income Tax Collections ($ in Millions)

Percent of State Fiscal Individual % General Fund Year Income Tax Change Tax Collections

2011-12 $7,041.7 5.1% 52.1% 2012-13 7,496.9 6.5 53.2 2013-14 7,061.4 -5.8 50.6 2014-15 7,325.8 3.7 50.4 2015-16 7,740.8 5.7 51.3 2016-17 8,039.5 3.9 51.8 2017-18 8,479.2 5.5 52.5 2018-19 8,994.1 6.1 51.9 2019-20 8,742.3 -2.8 49.9 2020-21 9,283.4 6.2 47.4 2021-22 9,214.4 -0.7 44.8

23 million tax filers reported $194.69 billion in Wisconsin AGI. Of these tax filers, approximately 2.3 million had a net state individual income tax liability totaling $8.31 billion. The average net tax liability was $3,673.

Table 7 presents information on the distribution by Wisconsin AGI class of gross tax liability, used credit amounts, and net tax liability. Gross tax liability of approximately $9.97 billion was reduced by $1,656.7 million of used tax cred- its. Total net tax liability was $8.31 billion.

The distribution of selected used credits by type of credit is presented in Table 8. The used credit amounts are shown because these credits are non- refundable (the amount of the tax credit may not exceed tax liability). The PTRC was the largest at $430.2 million. Other tax credits shown in the table include: the itemized deduction credit at a cost of $268.9 million; the married couple credit at $257.3 million; and the credit for taxes paid to other states equaling $387.0 million.

The distribution of taxpayers by filing status and Wisconsin AGI is shown in Table 9. The distribution included 61.2% who were single tax- payers (including single dependents and heads-of- households), 37.7% who filed married-joint re- turns, and 1.1% who filed married-separate returns.

Table 6: Distribution of Wisconsin Adjusted Gross Income and Net Tax Liability by Adjusted Gross Income Class (Tax Year 2020)

Adjusted Gross Income

Net Tax Liability

Total Adjusted

% of

% of Average

% of

% of Average

Gross Income Count Count Amount Total Amount Count Count Amount Total Amount

Under $5,000 473,261 15.05% -$1,389,646,878 -0.71% -$2,936 39,785 1.76% $3,317,333 0.04% $83

5,000 - 10,000 216,766 6.89 1,604,597,524 0.82 7,402 27,543 1.22 6,317,055 0.08 229 10,000 - 15,000 180,608 5.74 2,249,051,026 1.16 12,453 67,257 2.97 10,247,412 0.12 152 15,000 - 20,000 162,721 5.17 2,841,414,107 1.46 17,462 96,961 4.28 22,044,369 0.27 227 20,000 - 25,000 158,165 5.03 3,560,489,032 1.83 22,511 125,839 5.56 41,362,830 0.50 329 25,000 - 30,000 162,283 5.16 4,464,091,746 2.29 27,508 138,326 6.11 71,523,183 0.86 517 30,000 - 40,000 320,008 10.17 11,177,477,091 5.74 34,929 310,180 13.71 254,769,506 3.07 821 40,000 - 60,000 467,918 14.88 22,990,989,838 11.81 49,135 461,447 20.39 751,420,325 9.04 1,628 60,000 - 80,000 291,973 9.28 20,241,326,510 10.40 69,326 289,258 12.78 795,422,881 9.57 2,750 80,000 - 100,000 204,448 6.50 18,299,442,075 9.40 89,507 203,143 8.98 789,638,773 9.50 3,887 100,000 - 150,000 287,680 9.15 34,834,033,703 17.89 121,086 286,093 12.64 1,649,542,249 19.85 5,766 150,000 - 200,000 104,728 3.33 17,897,103,298 9.19 170,891 103,910 4.59 901,671,669 10.85 8,677

Over 200,000 114,985 3.66 55,922,075,290 28.72 486,342 113,236 5.00 3,014,694,722 36.27 26,623

Total 3,145,544 100.0% $194,692,444,362 100.0% $61,895 2,262,978 100.0% $8,311,972,307 100.0% $3,673

Source: 2020 Individual Income Tax Aggregate Data

Table 7: Distribution of Wisconsin Gross Tax Liability, Used Credits, and Net Tax Liability by Adjusted Gross Income Class (Tax Year 2020)

Used

Total Adjusted Gross Tax Liability Credit Amounts Net Tax Liability Gross Income Amount Percent Amount Percent Amount Percent

Under $5,000 $3,501,793 0.04% $184,460 0.01% $3,317,333 0.04%

5,000 - 10,000 6,705,975 0.07 388,920 0.02 6,317,055 0.08 10,000 - 15,000 12,599,009 0.13 2,351,597 0.14 10,247,412 0.12 15,000 - 20,000 32,684,213 0.33 10,639,844 0.64 22,044,369 0.27 20,000 - 25,000 57,137,472 0.57 15,774,642 0.95 41,362,830 0.50 25,000 - 30,000 94,798,034 0.95 23,274,851 1.40 71,523,183 0.86 30,000 - 40,000 314,051,234 3.15 59,281,728 3.58 254,769,506 3.07 40,000 - 60,000 878,181,889 8.81 126,761,564 7.65 751,420,325 9.04 60,000 - 80,000 925,523,638 9.28 130,100,757 7.85 795,422,881 9.57 80,000 - 100,000 921,986,721 9.25 132,347,948 7.99 789,638,773 9.50 100,000 - 150,000 1,932,735,726 19.39 283,193,477 17.09 1,649,542,249 19.85 150,000 - 200,000 1,039,817,662 10.43 138,145,993 8.34 901,671,669 10.85

Over 200,000 3,748,921,713 37.61 734,226,991 44.32 3,014,694,722 36.27

Total $9,968,645,079 100.00% $1,656,672,772 100.00% $8,311,972,307 100.00%

Source: 2020 Individual Income Tax Aggregate Data

Table 8: Distribution of Selected Used Credits by Type of Credit by Adjusted Gross Income Class (Tax Year 2020) Total Adjusted Property Tax/Rent Itemized Deduction Married Couple Taxes Paid Other States Gross Income Amount Percent Amount Percent Amount Percent Amount Percent

Under $5,000 $36,211 0.01% $80,713 0.03% $9,341 <0.01% $6,867 <0.01%

5,000 - 10,000 130,766 0.03 135,687 0.05 24,633 0.01 21,866 0.01 10,000 - 15,000 1,937,944 0.45 199,707 0.07 40,797 0.02 77,292 0.02 15,000 - 20,000 9,681,783 2.25 470,203 0.17 53,158 0.02 271,257 0.07 20,000 - 25,000 14,261,573 3.31 732,675 0.27 105,117 0.04 511,195 0.13 25,000 - 30,000 20,774,481 4.83 1,049,045 0.39 359,397 0.14 849,096 0.22 30,000 - 40,000 49,224,567 11.44 2,908,256 1.08 3,161,835 1.23 3,371,280 0.87 40,000 - 60,000 86,353,154 20.07 8,645,158 3.21 17,074,051 6.64 12,733,128 3.29 60,000 - 80,000 64,173,997 14.92 11,967,803 4.45 35,216,309 13.69 16,068,968 4.15 80,000 - 100,000 49,784,997 11.57 15,819,341 5.88 46,735,290 18.16 17,480,097 4.52 100,000 - 150,000 75,155,388 17.47 67,875,177 25.24 89,487,082 34.78 44,559,022 11.51 150,000 - 200,000 28,264,653 6.57 41,893,657 15.58 34,658,180 13.47 28,865,863 7.46

Over 200,000 30,470,201 7.08 117,143,223 43.56 30,374,725 11.81 262,221,524 67.75

Total $430,249,715 100.00% $268,920,645 100.00% $257,299,915 100.00% $387,037,455 100.00%

Source: 2020 Individual Income Tax Aggregate Data

Table 9: Distribution of Taxpayers by Filing Status and by Adjusted Gross Income Class (Tax Year 2020)

Married

Single, Claimed as Head-of- Married Total Adjusted Total Filing Jointly Single Dependent by Other Household Filing Separately Gross Income Count Percent Count Percent Count Percent Count Percent Count Percent Count Percent

Under $5,000 473,261 15.05% 88,491 7.47% 288,103 19.43% 69,236 41.66% 22,484 8.16% 4,947 13.61%

5,000 - 10,000 216,766 6.89 31,338 2.65 115,428 7.78 53,250 32.04 14,898 5.41 1,852 5.10

10,000 - 15,000 180,608 5.74 28,504 2.41 106,885 7.21 25,112 15.11 18,172 6.60 1,935 5.33

15,000 - 20,000 162,721 5.17 25,748 2.17 105,266 7.10 10,013 6.02 19,758 7.17 1,936 5.33

20,000 - 25,000 158,165 5.03 30,886 2.61 99,529 6.71 4,276 2.57 21,304 7.73 2,170 5.97

25,000 - 30,000 162,283 5.16 34,287 2.89 100,213 6.76 1,888 1.14 23,585 8.56 2,310 6.36

30,000 - 40,000 320,008 10.17 70,390 5.94 195,614 13.19 1,445 0.87 47,510 17.25 5,049 13.89

40,000 - 60,000 467,918 14.88 142,014 11.99 259,747 17.52 604 0.36 57,428 20.85 8,125 22.36

60,000 - 80,000 291,973 9.28 148,909 12.57 112,823 7.61 142 0.09 26,071 9.46 4,028 11.08

80,000 -100,000 204,448 6.50 146,130 12.34 45,292 3.05 70 0.04 11,275 4.09 1,681 4.63

100,000 -150,000 287,680 9.15 243,803 20.58 33,902 2.29 76 0.05 8,420 3.06 1,479 4.07

150,000 -200,000 104,728 3.33 93,113 7.86 9,012 0.61 27 0.02 2,206 0.80 370 1.02

Over 200,000 114,985 3.66 100,966 8.52 11,125 0.75 65 0.04 2,373 0.86 456 1.25

Total 3,145,544 100.00% 1,184,579 100.00% 1,482,939 100.00% 166,204 100.00% 275,484 100.00% 36,338 100.00%

Percent of Total

100.00%

37.66%

47.14%

5.28%

8.76%

1.16%

Source: 2020 Individual Income Tax Aggregate Data

27 APPENDIX

History of the Wisconsin Individual Income Tax

Development of the Tax Structure

In 1911, Wisconsin became the first state to adopt an individual income tax. Marginal tax rates ranged from 1% on the first $1,000 of taxable in- come up to 6% on taxable income in excess of $12,000. From 1911 to 1978, tax rates gradually increased and additional brackets were added to the tax structure. Since 1979, indexing of the indi- vidual income tax brackets expanded the bracket amounts in 1980, 1981, and 1982, while holding the top marginal tax rate at 10%. However, index- ing adjustments were suspended for tax years 1983 through 1985.

The marital property reform act (1983 Act 186) established a joint income tax return structure to reflect the concept of taxing spouses as a single economic unit. The 1985-87 biennial budget (1985 Act 29) reduced the number of tax brackets and reduced the top marginal rate to 7.9%. The preceding changes took effect in 1986.

The 1987-89 biennial budget (1987 Act 27) further reduced the number of tax brackets from four to three, lowered the top marginal rate to 6.93%, and deleted indexing. The tax rates were also reduced during the 1997-99 legislative ses- sion so that the top tax rate was 6.77% beginning with the 1998 tax year. 1997 Act 27 reintroduced indexing beginning in tax year 1999.

The number of tax brackets was increased from three to four under the 1999-01 biennial budget (1999 Act 9) and the tax rates were reduced so that the top tax rate was 6.75% beginning in 2000. Act 9 further reduced the first three tax rates effective in tax year 2001 and thereafter. Effective for tax year 2009 and thereafter, a fifth tax bracket for high-income taxpayers was created by 2009 Act 28, and the marginal tax rate for the bracket was set at 7.75%. Effective in tax year 2013, 2013 Act 20 reduced the rates for each of the tax brackets and consolidated the third and fourth tax brackets into a single tax bracket. 2013 Act 145 reduced the tax rate for the bottom tax bracket, effective in tax year 2014. Beginning in tax year 2019, the rate for the second lowest tax bracket was reduced under 2019 Act 9 (the 2019-21 biennial budget bill) from 5.84% to 5.21%. Under 2019 Act 10, the rates for the two lowest tax brackets were reduced in tax year 2019 to 3.86% and 5.04% and in tax year 2020 to 3.54% and 4.65%. The rate for the third bracket was lowered under 2021 Act 58 (the 2021- 23 biennial budget bill) from 6.27% to 5.30%, be- ginning in tax year 2021.

In 1911, personal exemptions, which were de- ducted directly from income, totaled $800 for an individual, $1,200 for a married couple, and $200 for each dependent. With the conversion to credits in 1927, the personal exemption credit along with the standard deduction and itemized deductions determined the level of income at which a family began to pay taxes. In 1977, the low-income al- lowance and dependent deduction were provided to assure that low-income taxpayers would not be required to file a Wisconsin tax return if they were exempt from filing a federal tax return. Beginning in 1986, a sliding scale standard deduction based on filing status and income level replaced the standard deduction and low-income allowance. 2015 Act 55 adjusted the statutory standard deduc- tion to provide a larger deduction for married filers beginning in tax year 2016. Finally, the working families tax credit was created beginning with the 1998 tax year.

Starting with tax year 2000, Wisconsin elimi- nated the dependent and senior credits and re- turned to personal exemptions.

Table 10 charts the historical development of the Wisconsin tax rate and bracket structure. Changes in the personal exemption/credit, the standard deduction, and the low-income allowance are shown in Table 11.

28 Table 10: Historical Levels of Wisconsin's Individual Income Tax Rate and Bracket Structure

Taxable Income Bracket 1911-31 1932-52 1953-61 1962 1963-64 1965 1966-70 1971 1972-78

1st $1,000 1.00% 1.00% 1.00% 2.00% 2.30% 2.50% 2.70% 2.80% 3.10%

2nd 1,000 1.25 1.25 1.25 2.25 2.55 2.75 2.95 3.10 3.40

3rd 1,000 1.50 1.50 1.50 2.50 2.80 3.00 3.20 3.30 3.60

4th 1,000 1.75 2.00 2.50 3.50 3.80 4.00 4.20 4.30 4.80

5th 1,000 2.00 2.50 3.00 4.00 4.30 4.50 4.70 4.90 5.40

6th 1,000 2.50 3.00 3.50 4.50 4.80 5.00 5.20 5.40 5.90

7th 1,000 3.00 3.50 4.00 5.00 5.30 5.50 5.70 5.90 6.50

8th 1,000 3.50 4.00 5.00 6.00 6.30 6.50 6.70 6.90 7.60

9th 1,000 4.00 4.50 5.50 6.50 6.80 7.00 7.20 7.50 8.20

10th 1,000 4.50 5.00 6.00 7.00 7.30 7.50 7.70 8.00 8.80

11th 1,000 5.00 5.50 6.50 7.50 7.80 8.00 8.20 8.50 9.30

12th 1,000 5.50 6.00 7.00 8.00 8.30 8.50 8.70 9.00 9.90

13th 1,000 6.00 7.00 7.50 8.50 8.80 9.00 9.20 9.50 10.50

14th 1,000 6.00 7.00 8.00 9.00 9.30 9.50 9.70 10.00 11.10

15th 1,000 6.00 7.00 8.50 9.50 9.80 10.00 10.00 10.40 11.40

Over 15,000 6.00 7.00 8.50 10.00 10.00 10.00 10.00 10.40 11.40

1979 to 1985

Taxable Income Brackets Marginal Tax Rates

1979 1980 1981 1982-85 1979 to 1985

$0 - $3,000 $0 - $3,300 $0 - $3,600 $0 - $3,900 3.4%

3,000 - 6,000 3,300 - 6,600 3,600 - 7,200 3,900 - 7,700 5.2

6,000 - 9,000 6,600 - 9,900 7,200 - 10,900 7,700 - 11,700 7.0

9,000 - 12,000 9,900 - 13,200 10,900 - 14,500 11,700 - 15,500 8.2 12,000 - 15,000 13,200 - 16,500 14,500 - 18,100 15,500 - 19,400 8.7 15,000 - 20,000 16,500 - 22,000 18,100 - 24,100 19,400 - 25,800 9.1 20,000 - 40,000 22,000 - 44,000 24,100 - 48,200 25,800 - 51,600 9.5

Over 40,000 Over 44,000 Over 48,200 Over 51,600 10.0

1986 to 1998

Taxable Income Brackets Marginal Tax Rates

Single Married, Joint Married, Separate 1986 1987-1997 1998

$0 - $7,500 $0 - $10,000 $0 - $5,000 5.0% 4.90% 4.77%

7,500 - 15,000 10,000 - 20,000 5,000 - 10,000 6.6 6.55 6.37

15,000 - 30,000 20,000 - 40,000 10,000 - 20,000 7.5 6.93 6.77

Over 30,000 Over 40,000 Over 20,000 7.9 6.93 6.77

1999

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $7,620 $0 - $10,160 $0 - $5,080 4.77%

7,620 - 15,240 10,160 - 20,320 5,080 - 10,160 6.37

Over 15,240 Over 20,320 Over 10,160 6.77

2000

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $7,790 $0 - $10,390 $0 - $5,200 4.73%

7,790 - 15,590 10,390 - 20,780 5,200 - 10,390 6.33

15,590 - 116,890 20,780 - 155,850 10,390 - 77,930 6.55

Over 116,890 Over 155,850 Over 77,930 6.75

29 Table 10: Historical Levels of Wisconsin's Individual Income Tax Rate and Bracket Structure (continued)

2001

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $8,060 $0 - $10,750 $0 - $5,380 4.60%

8,060 - 16,130 10,750 - 21,500 5,380 - 10,750 6.15

16,130 - 116,330 21,500 - 155,100 10,750 - 77,550 6.50

Over 116,330 Over 155,100 Over 77,550 6.75

2002

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $8,280 $0 - $11,040 $0 - $5,520 4.60%

8,280 - 16,560 11,040 - 22,080 5,520 - 11,040 6.15

16,560 - 124,200 22,080 - 165,600 11,040 - 82,800 6.50

Over 124,200 Over 165,600 Over 82,800 6.75

2003

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $8,430 $0 - $11,240 $0 - $5,620 4.60%

8,430 - 16,860 11,240 - 22,480 5,620 - 11,240 6.15

16,860 - 126,420 22,480 - 168,560 11,240 - 84,280 6.50

Over 126,420 Over 168,560 Over 84,280 6.75

2004

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $8,610 $0 - $11,480 $0 - $5,740 4.60%

8,610 - 17,220 11,480 - 22,960 5,740 - 11,480 6.15

17,220 - 129,150 22,960 - 172,200 11,480 - 86,100 6.50

Over 129,150 Over 172,200 Over 86,100 6.75

2005

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $8,840 $0 - $11,780 $0 - $5,890 4.60%

8,840 - 17,680 11,780 - 23,570 5,890 - 11,780 6.15

17,680 - 132,580 23,570 - 176,770 11,780 - 88,390 6.50

Over 132,580 Over 176,770 Over 88,390 6.75

2006

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $9,160 $0 - $12,210 $0 - $6,110 4.60%

9,160 - 18,320 12,210 - 24,430 6,110 - 12,210 6.15

18,320 - 137,410 24,430 - 183,210 12,210 - 91,600 6.50

Over 137,410 Over 183,210 Over 91,600 6.75

30 Table 10: Historical Levels of Wisconsin's Individual Income Tax Rate and Bracket Structure (continued)

2007

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $9,510 $0 - $12,680 $0 - $6,340 4.60%

9,510 - 19,020 12,680 - 25,360 6,340 - 12,680 6.15

19,020 - 142,650 25,360 - 190,210 12,680 - 95,100 6.50

Over 142,650 Over 190,210 Over 95,100 6.75

2008

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $9,700 $0 - $12,930 $0 - $6,470 4.60%

9,700 - 19,400 12,930 - 25,860 6,470 - 12,930 6.15

19,400 - 145,460 25,860 - 193,950 12,930 - 96,980 6.50

Over 145,460 Over 193,950 Over 96,980 6.75

2009

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $10,220 $0 - $13,620 $0 - $6,810 4.60%

10,220 - 20,440 13,620 - 27,250 6,810 - 13,620 6.15

20,440 - 153,280 27,250 - 204,370 13,620 - 102,190 6.50

153,280 - 225,000 204,370 - 300,000 102,190 - 150,000 6.75

Over 225,000 Over 300,000 Over 150,000 7.75

2010

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $10,070 $0 - $13,420 $0 - $6,710 4.60%

10,070 - 20,130 13,420 - 26,850 6,710 - 13,420 6.15

20,130 - 151,000 26,850 - 201,340 13,420 - 100,670 6.50

151,000 - 221,660 201,340 - 295,550 100,670 - 147,770 6.75

Over 221,660 Over 295,550 Over 147,770 7.75

2011

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $10,180 $0 - $13,580 $0 - $6,790 4.60%

10,180 - 20,360 13,580 - 27,150 6,790 - 13,580 6.15

20,360 - 152,740 27,150 - 203,650 13,580 - 101,820 6.50

152,740 - 224,210 203,650 - 298,940 101,820 - 149,470 6.75

Over 224,210 Over 298,940 Over 149,470 7.75

2012

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $10,570 $0 - $14,090 $0 - $7,040 4.60%

10,570 - 21,130 14,090 - 28,180 7,040 - 14,090 6.15

21,130 - 158,500 28,180 - 211,330 14,090 - 105,660 6.50

158,500 - 232,660 211,330 - 310,210 105,660 - 155,110 6.75

Over 232,660 Over 310,210 Over 155,110 7.75

31 Table 10: Historical Levels of Wisconsin's Individual Income Tax Rate and Bracket Structure (continued)

2013

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $10,750 $0 - $14,330 $0 - $7,160 4.40%

10,750 - 21,490 14,330 - 28,650 7,160 - 14,330 5.84

21,490 - 236,600 28,650 - 315,460 14,330 - 157,730 6.27

Over 236,600 Over 315,460 Over 157,730 7.65

2014

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $10,910 $0 - $14,540 $0 - $7,270 4.00%

10,910 - 21,820 14,540 - 29,090 7,270 - 14,540 5.84

21,820 - 240,190 29,090 - 320,250 14,540 - 160,130 6.27

Over 240,190 Over 320,250 Over 160,130 7.65

2015

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $11,090 $0 - $14,790 $0 - $7,400 4.00%

11,090 - 22,190 14,790 - 29,580 7,400 - 14,790 5.84

22,190 - 244,270 29,580 - 325,700 14,790 - 162,850 6.27

Over 244,270 Over 325,700 Over 162,850 7.65

2016

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $11,120 $0 - $14,820 $0 - $7,410 4.00%

11,120 - 22,230 14,820 - 29,640 7,410 - 14,820 5.84

22,230 - 244,750 29,640 - 326,330 14,820 - 163,170 6.27

Over 244,750 Over 326,330 Over 163,170 7.65

2017

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $11,230 $0 - $14,980 $0 - $7,490 4.00%

11,230 - 22,470 14,980 - 29,960 7,490 - 14,980 5.84

22,470 - 247,350 29,960 - 329,810 14,980 - 164,900 6.27

Over 247,350 Over 329,810 Over 164,900 7.65

2018

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $11,450 $0 - $15,270 $0 - $7,630 4.00%

11,450 - 22,900 15,270 - 30,540 7,630 - 15,270 5.84

22,900 - 252,150 30,540 - 336,200 15,270 - 168,100 6.27

Over 252,150 Over 336,200 Over 168,100 7.65

32 Table 10: Historical Levels of Wisconsin's Individual Income Tax Rate and Bracket Structure (continued)

2019

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $11,760 $0 - $15,680 $0 - $7,840 3.86%

11,760 - 23,520 15,680 - 31,360 7,840 - 15,680 5.04

23,520 - 258,950 31,360 - 345,270 15,680 - 172,630 6.27

Over 258,950 Over 345,270 Over 172,630 7.65

2020

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $11,970 $0 - $15,960 $0 - $7,980 3.54%

11,970 - 23,930 15,960 - 31,910 7,980 - 15,960 4.65

23,930 - 263,480 31,910 - 351,310 15,960 - 175,660 6.27

Over 263,480 Over 351,310 Over 175,660 7.65

2021

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $12,120 $0 - $16,160 $0 - $8,080 3.54%

12,120 - 24,250 16,160 - 32,330 8,080 - 16,160 4.65

24,250 - 266,930 32,330 - 355,910 16,160 - 177,960 5.30

Over 266,930 Over 355,910 Over 177,960 7.65

2022

Taxable Income Brackets Marginal

Single Married, Joint Married, Separate Tax Rates

$0 - $12,760 $0 - $17,010 $0 - $8,510 3.54%

12,760 - 25,520 17,010 - 34,030 8,510 - 17,010 4.65

25,520 - 280,950 34,030 - 374,600 17,010 - 187,300 5.30

Over 280,950 Over 374,600 Over 187,300 7.65

Table 11: Historic Levels of Personal Exemptions/Credits, Standard Deduction, and Low Income Allowance

Personal Exemptions/Credits

1911 1925 1927 1931 1953 1965 1971 1972 1974 1986a 2000 2001 & Thereafter

Exemption Exemption Credit Credit Credit Credit Credit Credit Credit Credit Exemption Exemption

Individual $800 $800 $8.00 $8.00 $7 $10 $12 $15 $20 $-0- $600 $700 Married-Joint 1,200 1,600 17.50 17.50 14 20 24 30 40 -0- 1,200 1,400 Dependent 200 300 3.00 4.00 7 10 12 15 20 50 600 700 65 and Over 800 800 8.00 7.00 7 15 17 20 25 25 200 250

Standard Deduction and Low Income Allowance

1911 1949 1962 1965 1971 1972 1973 1977 1979 to 1985

Minimum -0- -0- -0- $300 $475 $1,000 $1,300 $1,300 to $5,700b $1,300 to $5,700b Maximum -0- $450 $1,000 1,000 1,250 2,000 2,000 2,000 Single: $2,300; Married: $3,400 Percentage of Income -0- 9% 10% 10% 11% 14% 15% 15% -0- (Formula Based)

Sliding Scale Standard Deduction

1986

1987

1988 to 1993

Single Married-J Married-S Single Married-J Married-S Single Married-J Married-S

Maximum Standard Deduction $5,200 $7,200 $5,200 $5,200 $7,560 $3,590 $5,200 $8,900 $4,230 Phase-Out Income 7,500 10,000 4,750 7,500 10,000 4,750 7,500 10,000 4,750 Phase-Out Rate 12.0% 10.667% 10.667% 12.0% 12.5% 12.5% 12.0% 19.778% 19.778% Maximum Income $50,830 $77,500 $36,810 $50,830 $70,480 $33,470 $50,830 $55,000 $26,140

1994 to 1998

1999

Head-of-

Head-of-

Single Married-J Married-S Household

Single Married-J Married-S Household

Maximum Standard Deduction $5,200 $8,900 $4,230 $7,040

$5,280 $9,040 $4,300 $7,150 Phase-Out Income 7,500 10,000 4,750 7,500

7,620 10,160 4,830 7,620 Phase-Out Rate 12.0% 19.778% 19.778% 22.515%

12.0% 19.778% 19.778% 22.515% Maximum Income $50,830 $55,000 $26,140 $25,000c

$51,620 $55,867 $26,571 $25,404c

2000

2001

Head-of-

Head-of-

Single Married-J Married-S Household

Single Married-J Married-S Household

Maximum Standard Deduction $7,200 $12,970 $6,160 $9,300

$7,440 $13,410 $6,370 $9,620 Phase-Out Income 10,380 14,570 6,920 10,380

10,730 15,070 7,160 10,730 Phase-Out Rate 12.0% 19.778% 19.778% 22.515%

12.0% 19.778% 19.778% 22.515%

Maximum Income $70,380 $80,150 $38,070 $30,350c

$72,730 $82,872 $39,367 $31,460c

Table 11: Historic Levels of Personal Exemptions/Credits, Standard Deduction, and Low Income Allowance (continued)

2002

2003

Head-of-

Head-of-

Single Married-J Married-S Household

Single Married-J Married-S Household

Maximum Standard Deduction $7,650 $13,770 $6,540 $9,880

$7,790 $14,030 $6,660 $10,060 Phase-Out Income 11,020 15,470 7,350 11,020

11,220 15,760 7,480 11,220 Phase-Out Rate 12.0% 19.778% 19.778% 22.515%

12.0% 19.778% 19.778% 22.515% Maximum Income $74,770 $85,092 $40,417 $32,230 c

$76,136 $86,697 $41,154 $32,809 c

2004

2005

Head-of-

Head-of-

Single Married-J Married-S Household

Single Married-J Married-S Household

Maximum Standard Deduction $7,950 $14,330 $6,810 $10,270

$8,170 $14,710 $6,990 $10,550 Phase-Out Income 11,470 16,100 7,640 11,470

11,770 16,520 7,850 11,770 Phase-Out Rate 12.0% 19.778% 19.778% 22.515%

12.0% 19.778% 19.778% 22.515% Maximum Income $77,720 $88,554 $42,072 $33,534 c

$79,853 $90,895 $43,192 $34,404 c

2006

2007

Head-of-

Head-of-

Single Married-J Married-S Household

Single Married-J Married-S Household

Maximum Standard Deduction $8,460 $15,240 $7,240 $10,930

$8,790 $15,830 $7,520 $11,350 Phase-Out Income 12,200 17,120 8,130 12,200

12,670 17,780 8,440 12,670 Phase-Out Rate 12.0% 19.778% 19.778% 22.515%

12.0% 19.778% 19.778% 22.515% Maximum Income $82,700 $94,175 $44,736 $35,690 c

$85,920 $97,818 $46,462 $37,016 c

2008

2009

Head-of-

Head-of-

Single Married-J Married-S Household

Single Married-J Married-S Household

Maximum Standard Deduction $8,960 $16,140 $7,660 $11,570

$9,440 $17,010 $8,080 $12,190 Phase-Out Income 12,920 18,130 8,610 12,920

13,610 19,100 9,070 13,610 Phase-Out Rate 12.0% 19.778% 19.778% 22.515%

12.0% 19.778% 19.778% 22.515% Maximum Income $87,587 $99,736 $47,340 $37,742 c

$92,277 $105,105 $49,923 $39,763 c

2010

2011

Head-of-

Head-of-

Single Married-J Married-S Household

Single Married-J Married-S Household

Maximum Standard Deduction $9,300 $16,750 $7,960 $12,010

$9,410 $16,940 $8,050 $12,150 Phase-Out Income 13,410 18,820 8,940 13,410

13,560 19,040 9,040 13,560 Phase-Out Rate 12.0% 19.778% 19.778% 22.515%

12.0% 19.778% 19.778% 22.515% Maximum Income $90,910 $103,510 $49,187 $39,183 c

$91,977 $104,691 $49,742 $39,618 c

2012

2013

Head-of-

Head-of-

Single Married-J Married-S Household

Single Married-J Married-S Household

Maximum Standard Deduction $9,760 $17,580 $8,350 $12,610

$9,930 $17,880 $8,490 $12,820 Phase-Out Income 14,070 19,750 9,380 14,070

14,310 20,090 9,540 14,310 Phase-Out Rate 12.0% 19.778% 19.778% 22.515%

12.0% 19.778% 19.778% 22.515% Maximum Income $95,403 $108,637 $51,599 $41,174 c

$97,060 $110,493 $52,466 $41,795 c

Table 11: Historic Levels of Personal Exemptions/Credits, Standard Deduction, and Low Income Allowance (continued)

2014

2015

Head-of-

Head-of-

Single Married-J Married-S Household

Single Married-J Married-S Household

Maximum Standard Deduction $10,080 $18,150 $8,620 $13,020

$10,250 $18,460 $8,770 $13,240 Phase-Out Income 14,530 20,390 9,690 14,530

14,780 20,740 9,850 14,780 Phase-Out Rate 12.0% 19.778% 19.778% 22.515%

12.0% 19.778% 19.778% 22.515% Maximum Income $98,530 $112,159 $53,274 $42,490 c

$100,197 $114,076 $54,192 $43,216 c

2016

2017

Head-of-

Head-of-

Single Married-J Married-S Household

Single Married-J Married-S Household

Maximum Standard Deduction $10,270 $19,010 $9,030 $13,260

$10,380 $19,210 $9,130 $13,400 Phase-Out Income 14,800 21,360 10,140 14,800

14,960 21,590 10,250 14,960 Phase-Out Rate 12.0% 19.778% 19.778% 22.515%

12.0% 19.778% 19.778% 22.515% Maximum Income $100,383 $117,477 $55,797 $42,236 c

$101,460 $118,718 $56,412 $43,681 c

2018

2019

Head-of-

Head-of-

Single Married-J Married-S Household

Single Married-J Married-S Household

Maximum Standard Deduction $10,580 $19,580 $9,300 $13,660

$10,860 $20,110 $9,550 $14,030 Phase-Out Income 15,250 22,010 10,450 15,250

15,660 22,600 10,730 15,660 Phase-Out Rate 12.0% 19.778% 19.778% 22.515%

12.0% 19.778% 19.778% 22.515% Maximum Income $103,417 $121,009 $57,472 $44,541 c

$106,160 $124,279 $59,016 $45,807 c

2020

2021

Head-of-

Head-of-

Single Married-J Married-S Household

Single Married-J Married-S Household

_______________________________________________________________________________________________________________________________ Maximum Standard Deduction $11,050 $20,470 $9,720 $14,280

$11,200 $20,730 $9,850 $14,470 Phase-Out Income 15,940 23,000 10,920 15,940

16,150 23,300 11,060 16,150 Phase-Out Rate 12.0% 19.778% 19.778% 22.515%

12.0% 19.778% 19.778% 22.515% Maximum Income $108,023 $126,499 $60,066 $46,658 c

$109,483 $128,113 $60,863 $47,248 c

2022

Head-of-

Single Married-J Married-S Household

Maximum Standard Deduction $11,790 $21,820 $10,370 $15,230 Phase-Out Income 16,990 24,520 11,640 16,990 Phase-Out Rate 12.0% 19.778% 19.778% 22.515% Maximum Income $115,240 $134,845 $64,072 $49,705 c

a The $25 senior credit was phased out for higher income taxpayers for tax years 1997 through 1999. b The low income allowance and dependent deduction varied depending upon age, marital status, number of dependents, and income level and could have exceeded the maximum. c Once head-of-household tax filers reach the maximum income amount, the single standard deduction is claimed.

36 Income Tax Surcharges

Between 1918 and 1962, Wisconsin had a se- ries of individual income tax surcharges for sev- eral purposes including: soldiers' cash bonuses; education, retirement old-age assistance, and health purposes; and emergency relief. The level of the surtax rose to a maximum of 60% of the normal tax between 1935 and 1942, but was sub- stantially lower during nonwar periods. In 1983, the state imposed a 10% surtax on 1983 calendar year tax liabilities to compensate for slower state revenue growth during a recession. Table 12 shows the type and level of the various surcharges adopted over time on the Wisconsin individual in- come tax.

Income Tax Check-Offs

Wisconsin provides individual income tax check-off procedures on the income tax forms through which taxpayers may make donations for a variety of specified purposes. From 1983 through 2000, there was a single option for making charitable donations along with filing the individual income tax, in the form of a check-off for endangered resources. Starting in 2001, a check-off was added for donations for operation and maintenance of Lambeau Field in Green Bay, and since then, additional check-offs have been created.

In response to the increasing number of check- offs, 2011 Act 222 combined the breast cancer re- search check-off and the prostate cancer research check-off into a single check-off for cancer re- search. In addition, the Act established a proce- dure for limiting the number of check-offs in any tax year to 10. Under the procedure, the least used check-offs would temporarily rotate off the form, if more than 10 check-offs have been created. A second provision enacted as part of 2013 Act 20 eliminated from tax forms any check-off that did not generate at least $75,000 in contributions in the previous tax year. This provision took effect in tax year 2015 and, based on contributions in tax year 2014, the income tax checkoffs for Lambeau Table 12: Individual Income Tax Surcharges

Tax Year

1918 1. Soldiers' cash bonus surtax ($3,000 exempt). 1918-1922 2. Soldiers' educational bonus surtax ($3,000 exempt-above $3,000 rates 1/6 of normal tax). 1920-1952 3. Teachers' retirement fund surtax ($3,000 exempt-above $3,000 rates 1/6 of normal tax).

1931 4. 1932 emergency relief surtax--(on 1931 income-deductible dividends added back. Capital gains and losses eliminated. Rates same as normal tax).

1932 5. 1933 emergency relief surtax--(on 1932 income. Deductible dividends added back).

1933 6. Surtax on 1933 deductible dividends.

1934 7. 1935 surtax on 1934 income deductible dividends added back. Losses allowable only to extent of gains. 1935-1942 8. 60% surtax, old age assistance--mothers' pensions--common school aids. Tax 60% of normal tax after deducting personal exemptions. 1947-1948 9. Optional tax on gross receipts--not over $3,500 income. 1949-1952

--not over $5,000 income. 1949-1950 10. 25% construction and educational aids surtax. 25% of normal tax after exemptions. 1953-1961 11. Optional tax on adjusted gross income. 1955-1958 12. 20% buildings, health, welfare, and education surtax. 20% of normal tax

and

(including teachers' retirement fund surtax) after exemptions. 1960-1961

1959 13. 25% buildings, health, welfare, and education surtax. 25% of normal tax (including teachers' retirement fund surtax) after exemptions.

1983 14. 10% surtax on tax liabilities to provide revenues for general fund.

37 Field and the Fire Fighters Memorial were eliminated in tax year 2015. This provision was modified under 2015 Act 55 so that any checkoff that does not generate at least $50,000 per year based on a three-year average of contributions, be- ginning with contributions made in tax year 2014, will be eliminated from the tax form. No checkoff has been eliminated since tax year 2015.

Table 13 reports the amounts donated through individual income tax check-off procedures for tax year 2020. Chronology of Modifications Since 1979

Chapter 1, Laws of 1979, significantly reduced the level of individual income tax collections in Wisconsin and recast the state tax structure through provisions to increase the standard deduc- tion, repeal itemized deductions for state and local taxes, widen and index tax brackets and lower tax rates, and provide a PTRC.

In Chapter 20, Laws of 1981, the state's exclu- sion for net long-term capital gains was phased in over a three-year period beginning in tax year 1982: (a) a 20% exclusion was provided in 1982; (b) 40% in 1983; and (c) 60% in 1984 and there- after. The federal capital gains exclusion was re- pealed in the Tax Reform Act of 1986. However, the 60% state exclusion was retained under 1987 Act 27.

The conversion to joint tax returns for state tax purposes was adopted in 1983 Act 186.

In 1985 Act 29, individual income tax revenues were reduced by modifying the base of income subject to tax, the tax rates and brackets, the al- lowable tax credits and deductions, and the state minimum tax. Further changes were made to the tax base, rates and brackets, and minimum tax in 1987 Act 27.

In 1989 Act 31, the married couple credit was reduced and the PTRC was raised. Act 31 also pro- vided one-time increases to the 1987 and 1988 school property tax/rent credits, paid to taxpayers in the form of a refund check that was sent out in April, 1990.

Under 1991 Act 39, the state EITC was modi- fied to reflect the federal credit in effect under cur- rent law, and the state's $1,200 limit on other in- terest under the itemized deduction credit was eliminated, beginning in 1993. A separate 25% state deduction for medical care insurance costs of self-employed persons and employees who are not covered by an employer-maintained health insur- ance plan was established for tax year 1993 under 1991 Act 269; this deduction increased to 50% in 1994.

In 1993 Act 16, the head-of-household stand- ard deduction was created, effective in tax year 1994. In addition, the deduction for medical insur- ance costs of self-employed individuals was in- creased to 100%, effective in tax year 1995. The deduction for employees remained at 50%. The previous separate state treatment of social security was established in 1993 Act 437, which retained references to the old federal IRC for purposes of the taxation of social security benefits.

The following income tax deductions and ex- emptions were created during the 1995 legislative session: (a) Act 261 created a deduction for adop- tion expenses; (b) Act 371 created an exemption for income received under a viatical settlement contract; (c) Act 453 created a deduction for con- tributions to a medical savings account (MSA), applicable when a broad-based federal program is Table 13: Donations through Individual Income Tax Check-Offs (Tax Year 2020)

Endangered Resources $342,917 Second Harvest Food Banks 304,651 Cancer Research 204,485 Red Cross Wisconsin Disaster Relief 156,018 Military Family Relief Fund 133,013 Special Olympics 124,186 Veterans Trust Fund 118,423 Multiple Sclerosis Programs 84,556

Source: 2020 Individual Income Tax Aggregate Data

38 enacted and certified by the Secretary of DOR; and (d) Act 403 created an exemption for earnings realized on contributions to a college tuition pre- payment program.

Several individual income tax changes were enacted as part of the 1997-99 biennial budget (1997 Act 27). Beginning with the 1997 tax year, the senior citizen credit was limited to lower-in- come seniors and the state provisions related to MSAs were repealed because the federal MSA program was adopted for state tax purposes. Ef- fective with the 1998 tax year, the income tax rates were reduced, the working families tax credit was created, the married couple credit was increased (phased-in over a four-year period), a complete capital gains exclusion for the sale of a business to a family member was provided, and a deduction for premiums paid for long-term care insurance was created. Act 27 also made two changes that took effect with the 1999 tax year: the standard de- duction and tax brackets were indexed for changes in inflation and the limits on farm and farm invest- ment losses that may be used to offset nonfarm in- come were repealed for persons actively engaged in farming.

The 1997-99 budget adjustment act (1997 Act 237) made the following changes, beginning with the 1998 tax year: (a) created a deduction for higher education tuition expenses; (b) reduced the income tax rates; and (c) adopted federal IRC changes, including the creation of the Roth IRA. Act 237 also provided for the one-time expansion of the PTRC for tax year 1998.

A significant number of modifications were made to the individual income tax during the 1999-01 legislative session. The biennial budget (1999 Act 9) increased the sliding scale standard deduction, created personal exemptions, provided an exemption for Nazi persecution restitution funds, created a fourth income tax bracket, re- duced the income tax rates, eliminated miscellane- ous deductions from the itemized deduction credit, increased the married couple credit, created a credit for military income received while serving overseas, eliminated the dependent and senior cit- izen tax credits, and expanded the homestead credit. These income tax modifications took effect with the 2000 tax year, except that the homestead credit expansion first applied to claims filed for property taxes or rent paid during tax year 1999.

The PTRC was repealed beginning with the 1999 tax year as part of the sales tax rebate legis- lation (1999 Act 10). However, the credit was later restored, beginning with tax years 2000 and there- after, in 1999 Act 198.

1999 Act 44 created a deduction for certain contributions to Edvest college savings programs.

The 2001-03 biennial budget act (Act 16) pro- vided an income tax exemption for all federal uni- formed services retirement benefits, effective with tax year 2002. Under the 2001-03 biennial budget adjustment act (Act 109), the deduction for contri- butions by parents to Edvest programs was ex- tended to grandparents of a beneficiary. Act 109 also updated Wisconsin references to the federal IRC for most federal law changes under the Com- munity Renewal Tax Relief Act of 2000 and under the Economic Growth and Tax Relief Reconcilia- tion Act of 2001. The major individual income tax changes under the IRC update were the increase in contribution limits to IRAs, temporary increases in the AMT exemption, and the expansion of a number of educational assistance programs. How- ever, Act 109 deleted provisions under prior law that had provided for automatic updates to federal law with respect to amortization and depreciation. As a result, in general, such provisions can only be adopted for state tax purposes after action by the Legislature, as is the case with other federal law changes.

During the 2003-05 legislative session, sev- eral new deductions and tax credits were enacted into law under non-budget legislation. Act 85 pro- vided that interest on WHEDA bonds issued to fund multifamily affordable housing or elderly

39 housing projects is exempt from tax. Act 119 cre- ated an individual income tax deduction for up to $10,000 for certain expenses related to human or- gan donation by a live donor. Under Act 183, a tax deduction was provided for military pay to reserv- ists mobilized by the federal government, regard- less of whether the service is in a combat zone. Act 289 expanded the $3,000 deduction for contribu- tions by parents and grandparents to Edvest col- lege savings programs to include contributions by great-grandparents, aunts, and uncles of a benefi- ciary. The modifications related to WHEDA bond interest, organ donation, military pay, and Edvest contributions were all effective with tax year 2004. The angel investment credit and early stage seed capital credit were created under Act 255 and took effect in tax year 2005.

Under the 2005-07 biennial budget (2005 Act 25), state tax references were generally updated to the IRC in effect as of December 31, 2004. The individual income tax deduction for college tui- tion was increased, effective with tax year 2005, and scheduled to increase annually along with av- erage tuition costs. The partial exemption for so- cial security benefits was increased to a full ex- emption, starting in tax year 2008. Expansions to the existing deductions for medical insurance pre- miums were approved, to be phased-in over a four-year period beginning in tax year 2006. Act 25 increased an existing nonrefundable income tax credit for military income earned while sta- tioned outside of the United States, effective with tax year 2006, and created a refundable tax credit for property taxes paid by certain veterans and sur- viving spouses, effective with tax year 2005.

Also, four new tax check-offs were created during the 2005-07 session. 2005 Act 25 created an individual income tax check-off for donations to the Veterans Trust Fund, starting with tax year 2005. The remaining three new check-offs all took effect for tax year 2006, and include check-offs for donations to multiple sclerosis programs (2005 Act 71), the Fire Fighters Memorial (2005 Act 323), and prostate cancer research (2005 Act 460).

The 2007-09 biennial budget (2007 Act 20) up- dated state tax references to include certain changes to the IRC enacted through November, 2006. In addition, the Act: (a) phased in a deduc- tion for medical care insurance premiums paid by an employee whose employer pays for some por- tion of the employee's health insurance costs be- tween 2008 and 2011; (b) increased the maximum college tuition deduction amount and applied the deduction also to mandatory student fees, both ef- fective in tax year 2009; (c) phased in over a four- year period beginning in tax year 2009 a deduction for certain expenses related to child and dependent care that may be claimed under the federal credit for child and dependent care expenses; and (d) provided an exemption for interest paid on certain bonds issued by WHEFA starting with tax year 2009.

In addition, Act 20 provided an individual in- come tax exclusion for up to $5,000 per person aged 65 or older for taxpayers with federal AGI of $15,000 or less ($30,000 or less for married-joint filers) for distributions from qualified retirement plans under the federal IRC, effective with tax year 2009. Act 20 also expanded eligibility for the veterans and surviving spouses property tax credit effective with tax year 2009, and expanded the an- gel investment credit and early stage seed invest- ment credits by (among other changes) increasing the amount of credits that can be claimed each year.

In the 2009-11 biennial budget (2009 Act 28), the Legislature created a fifth tax bracket with a marginal tax rate of 7.75% for upper income tax- payers. In addition, the Act provided that the in- dexing adjustment for the tax brackets and the sliding scale standard deduction could not be neg- ative, beginning with tax year 2012.

Act 28 modified the exclusion for long-term capital gains by reducing the exclusion for non- farm assets from 60% to 30%, beginning in tax year 2009, and by creating a 100% exclusion for long-term gains reinvested in qualified new

40 business ventures, beginning in tax year 2011.The Act postponed the phase-in of three deductions previously enacted. Also, the deduction for col- lege savings accounts was modified to permit con- tributions where the beneficiary is the contribu- tor's child, but the child is not a dependent.

Act 28 generally updated state tax references to reflect the IRC in effect as of December 31, 2008. Subsequently, Act 161 updated IRC refer- ences to allow taxpayers with federal AGI over $100,000 to convert a traditional IRA to a Roth IRA without penalty and to recognize higher con- tribution levels to various types of retirement ac- counts. Act 205 created a new type of debt obliga- tion called conduit revenue bonds and provided a state income tax exclusion for interest on those bonds.

Provisions in Act 28 modified the itemized de- duction credit to include casualty losses related to Presidentially-declared disasters and modified the EITC to allow advanced payments. This provision is tied to advance payments of the federal credit, which were discontinued, so the state payment was discontinued and later repealed. Two addi- tional income tax check-offs were created in Act 28 for Second Harvest Food Banks in Wisconsin and for the Military Family Relief Fund, effective in tax year 2009.

2011 Act 32 modified the deduction for contri- butions to college savings accounts and created a deferral and an exclusion related to capital gains tied to in-state investments. Act 32 generally up- dated state tax references to reflect the IRC in ef- fect as of December 31, 2010, and specified that employee-required contributions to the Wisconsin Retirement System must be considered as em- ployer contributions under the IRC. In addition, the treatment of health savings accounts and health insurance benefits for non-dependent chil- dren was federalized in Acts 1 and 49, respec- tively.

Act 32 created the domestic production activities credit, which was subsequently renamed the MAC in Act 232. Act 32 modified the EITC by reducing the credit percentages for claimants with two children from 14% to 11% and for claim- ants with more than two children from 43% to 34%, effective with tax year 2011. The credit per- centage for claimants with one child (4%) was not changed.

Finally, Act 32 eliminated two checkoffs and created a check-off for the Red Cross. Act 76 cre- ated a check-off for Special Olympics. In response to the increasing number of check-offs, Act 222 combined the two cancer-related check-offs and established a procedure for limiting the number of check-offs in any tax year to 10.

2013 Act 20 (the biennial budget act) reduced the rates for each of the tax brackets and consoli- dated the third and fourth tax brackets into a single bracket, effective in tax year 2013. Act 145 re- duced the tax rate for the bottom income tax bracket effective in tax year 2014. Other Act 20 changes included providing a deduction for K-12 private school tuition, indexing the income phase- out for the college tuition deduction, increasing the historic rehabilitation credit, expanding the veterans and surviving spouses property tax credit, and prohibiting individuals who fraudulently or recklessly claim any refundable tax credit from claiming any refundable tax credit in a certain number of succeeding years.

Several Act 20 changes were intended to in- crease the state's conformity with the federal in- come tax, and to simplify the tax by: (a) sunsetting various tax credits; (b) extending the research credits to non-corporate filers; and (c) eliminating income tax checkoffs that do not achieve mini- mum amounts of donations.

Other changes to the income tax included cre- ating exclusions for military income received by U.S. armed forces members who die while on ac- tive duty in a combat zone or from wounds, dis- ease, or injury incurred while serving in a combat

41 zone (2013 Act 19) and for certain grants received by primary care physicians or psychiatrists who practice in underserved areas of Wisconsin (Act 128). Act 62 expanded the state supplement to the federal historic rehabilitation credit. Act 227 ex- panded the individuals who may contribute to col- lege savings program accounts and created an in- flation adjustment for annual contribution amounts.

The 2015-17 biennial budget bill, 2015 Act 55, made the following changes to state income tax law: (a) increased the standard deduction for mar- ried filers; (b) federalized the treatment of exemp- tion amounts and phase-out provisions under the AMT; (c) adopted federal provisions allowing ed- ucator classroom expenses to be deducted; (d) modified deductible 529 higher education plans to index the maximum deduction limit and allow similar plans in other states to roll over contribu- tions into Wisconsin accounts; (e) adopted federal provisions governing ABLE accounts and allowed contributions made into such accounts to be de- ductible; (f) lowered the threshold for when in- come tax checkoffs must be eliminated from the income tax form; (g) modified and sunset several business tax credits; and (h) created the business development credit. Act 55 also adopted a number of changes made to the IRC through December 31, 2013, as well as several federal law changes en- acted in December of 2014.

Interest income from bonds issued by the City of Milwaukee to assist the Wisconsin Center Dis- trict became exempt from tax under 2015 Act 60. Under Act 84, income generated by out-of-state employees or businesses performing certain disas- ter relief work in connection with a state of emer- gency declared by the Governor was excluded from tax. The deduction for contributions made into ABLE accounts was extended to apply to ac- counts created in other states, pursuant to Act 312.

The 2017-19 biennial budget act, 2017 Act 59, included several provisions affecting the individ- ual income tax: (a) limiting the credit for taxes paid to other states to the tax that would be paid if the income was taxed in Wisconsin; (b) specify- ing that taxpayers may not use the same income to claim both the MAC and the taxes paid to other states credit; (c) modifying the itemized deduction credit for nonresidents and part-year residents by specifying how the sliding scale standard deduc- tion is applied; (d) excluding income received from the Olympic, Paralympic, or Special Olym- pic games; (e) clarifying that interest income re- ceived on bonds and notes issued by certain mu- nicipal authorities is excluded; (f) specifying that employees of professional employer organizations or groups are considered employees of the quali- fied Wisconsin business (for capital gains pur- poses); (g) extending the adoption deduction to expenses incurred in adoptions finalized outside Wisconsin; (h) modifying the treatment of net op- erating losses; (i) repealing the state's AMT begin- ning in tax year 2019; and (j) prohibiting DOR from issuing individual income tax refunds to em- ployed individuals before March 1 unless the indi- vidual and the individual's employer have filed all required returns and forms.

Act 59 also updated state income tax references to the IRC in effect as of December 31, 2016. After enactment of the TCJA in late 2017, federal tax law references were further updated under Act 231 to reflect the IRC as of December 31, 2017.

Also, several business tax credits were created related to businesses located in an electronic and information technology manufacturing zone (Act 58), low-income housing (Act 176), and employer contributions to an employee's college savings plan account (Act 197).

In a December, 2018, extraordinary legislative session, a 2013 provision requiring DOR to pro- portionally reduce each of the four individual in- come tax rates so that tax collections would be re- duced by an amount equal to the state sales and use tax collected from remote sellers was modified to subject the DOR determination to legislative

42 review and to accelerate the income tax rate reduc- tions by one year, so that they occurred in tax year 2019. Act 367 also allows pass-through entities to elect to be taxed at the entity level at a tax rate of 7.9%, as opposed to requiring that the entity's in- come flow through to its members and be taxed under the individual income tax.

2019 Act 7 stipulated that business expenses for moving business operations out of state cannot be deducted for state tax purposes. Act 9 (the 2019-21 biennial budget bill) reduced the rate for the second bracket and provided an exclusion for interest earned on certain WHEFA bonds.

Act 10 further modified the 2013 income tax reduction provisions described above by stipulat- ing that the reduction be based on the additional state sales and use tax revenue collected by remote sellers and marketplace providers, and be divided into two equal components through a rate reduc- tion for the bottom two brackets on a one-time ba- sis in tax year 2019 and on an ongoing basis be- ginning in tax year 2020.

Act 54 repealed statutory references to various obsolete refundable tax credits, and Act 136 pro- vided an exclusion for investments in a Wisconsin qualified opportunity fund. Act 167 expanded the MAC to crop insurance proceeds. Act 185 updated several references to the IRC, including a waiver of early withdrawal penalties for coronavirus-re- lated distributions from retirement funds.

Additional IRC references were updated under 2021 Act 1, including expanding eligible uses of distributions from federally qualified college sav- ings plans to include up to $10,000 of student loan principal and interest, and expenses associated with registered apprenticeship programs, and es- tablishing a permanent reduction to the medical expense itemized deduction floor. Act 1 adopted federal treatment of federal economic support pro- grams, including forgiven paycheck protection loans, and provided a deduction and exclusion for grants from certain state economic support pro- grams. Act 1 also expanded the medical care in- surance deduction for self-employed individuals beginning in tax year 2021.

The deadline to file individual income tax re- turns and make final tax payments was modified under 2021 Act 40 to be the same as the unex- tended due date for filing the corresponding fed- eral income tax return. Act 127 repealed statutory references to various obsolete tax credits. Act 156 conformed state tax treatment of restaurant revi- talization grants to the federal tax treatment, retro- active to tax year 2021, such that grant proceeds are excluded from gross income, and otherwise deductible expenses paid directly or indirectly with such grants are deductible.

The 2021-23 biennial budget act, 2021 Act 58, reduced the tax rate in the third income tax bracket from 6.27% to 5.30%, beginning in tax year 2021. Also beginning in tax year 2021, exclusions were created for: (a) certain active duty military pay re- ceived from the federal government (a related credit was also sunset); and (b) any amount of a national service educational award certified by the Corporation for National and Community Service (which includes the AmeriCorps program) and disbursed under specific provisions of federal law. Finally, beginning in tax year 2022, Act 58 created a nonrefundable credit for child and dependent care expenses equal to 50% of the corresponding federal credit, and sunset the related deduction.

Effective January 1, 2022, the individual in- come tax withholding tables were updated to re- flect the income tax rates, brackets, and sliding scale standard deduction in effect for tax year 2022. Beginning in tax year 2023, Act 157 feder- alized the state's treatment of net capital losses that may be deducted from ordinary income, such that the maximum amount that may be deducted in any year was increased from $500 to $3,000.