Wisconsin budget bill cuts individual income tax rates
INSIGHT ARTICLE |
Authored by RSM US LLP
Wisconsin’s biennial budget bill, Assembly Bill 68, was signed into law by Gov. Tony Evers on July 8, 2021. The bill, as it was presented to the governor, was so thoroughly amended by the legislature to become essentially a rewrite of his February executive budget proposed. Highlights of the final version, including a rate cut for middle-income earners and minor business tax changes, are described below.
Individual tax changes
For 2021, the budget provides a reduction in the individual income tax rate from 6.27% to 5.3% for filers in the third income tax bracket. Using the 2020 inflation-adjusted figures, the rate reduction applies to the following: single filers earning between $23,930 to $263,480, married filers earning between $21,910, and $351,310, and married filing separately between $15,960 and $175,660.
For individuals who are eligible to claim a federal child and dependent care tax credit, there will be an additional credit available under Wisconsin’s tax laws. This credit does not go into effect until taxable years beginning after Dec. 31, 2021 and is subject to a few limitations. Previously, Wisconsin allowed expense deductions but did not include a child and dependent care tax credit.
Business tax changes
Income and franchise taxes
The budget bill increases the Wisconsin Research Credit’s ‘not-to-exceed’ limit on the amount of the unused credit that is refundable from 10% to 15%. The increase is effective for taxable years beginning after Dec. 31, 2020. Businesses with qualified research expenses, to the extent they cannot be used to offset tax, are now 50% more refundable than in 2020.
For tax years beginning after Dec. 31, 2020, partnerships, LLCs, and S-corporations are now eligible to elect to claim certain credits at the entity-level where they previously were only able to pass the credit on to their partners and shareholders. Among these include the Enterprise Zone Jobs Credit, Business Development Zone Credit and the Jobs Tax Credit. These credits must have been negotiated with the Wisconsin Economic Development Corporation before Dec. 22, 2017 and cannot be claimed by both the entity and the shareholders/partners in the same taxable year. An electing entity must make the election for each taxable year on its original return and cannot subsequently make or revoke the election.
Sales and use taxes
Effective Oct. 1, 2021, the definition of ‘candy’ is revised, broadening the exemption for some foods subject to sales and use tax. Generally, products that include a sweetener, natural or otherwise, and chocolate, fruit or nuts are considered taxable candy. The modified definition excludes foods that have predominantly dried or partially dried fruit. However, preparations with chocolate, nuts, yogurt or confectionary glazing on a fruit are still considered candy.
Wisconsin is just the latest state to provide an individual income tax rate reduction in 2021 legislative sessions, joining at least Arizona, Idaho, Iowa, Montana and Oklahoma. However, Wisconsin’s approximately 15% cut is one of the larger cuts seen this year.
Taxpayers were also closely watching the originally introduced budget proposal which would have effectively limited the manufacturing tax credit to $300,000. That provision did not make it in the final budget.
Another bill, Assembly Bill 191, vetoed entirely, would have eliminated Wisconsin’s Personal Property Tax beginning with assessments as of Jan. 1, 2022. Over 30 states impose a tax on some classes of tangible personal property.
Taxpayers with questions about the Wisconsin budget bill should reach out to their state and local tax adviser for more information.
Call us at +1 213.873.1700, email us at firstname.lastname@example.org or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by Zach Rieboldt, Suzanne Schrank and originally appeared on 2021-07-12.
2021 RSM US LLP. All rights reserved.
The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Vasquez & Company LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Vasquez & Company LLP can assist you, please call +1 213.873.1700.
Subscribe to receive important updates from our Insights and Resources.