Does Wisconsin Tax Your Retirement Income?

Wisconsin generally taxes retirement income, though it offers specific exemptions that can significantly reduce or eliminate the state tax burden for many retirees. The state’s approach often aligns with federal taxation, meaning income considered taxable by the Internal Revenue Service (IRS) is typically subject to Wisconsin income tax unless a specific state law provides an exclusion.

Taxation of Common Retirement Income Sources

This includes distributions received from traditional Individual Retirement Arrangements (IRAs), 401(k) plans, and 403(b) accounts. Income from employer-sponsored pension plans and annuities also typically falls under Wisconsin’s taxable income umbrella. These distributions are usually reported on federal Form 1099-R, which details the gross distribution and any taxable amount.

The state’s income tax system largely begins with the federal adjusted gross income (AGI) as a baseline. If a retirement distribution is included in your federal AGI, it is generally considered taxable income for Wisconsin purposes unless a specific state exemption applies. For example, a distribution from a traditional IRA that is fully taxable at the federal level will likely be fully taxable in Wisconsin.

Roth IRA distributions, however, are typically exempt from Wisconsin income tax if they meet federal qualified distribution rules. This means that if the distribution is tax-free at the federal level, it will also be tax-free in Wisconsin. The state’s tax framework is designed to generally mirror the federal treatment of these types of retirement savings.

Wisconsin Exemptions for Retirement Income

Wisconsin provides specific exemptions for certain types of retirement income, offering significant tax relief to retirees. Social Security benefits are entirely exempt from Wisconsin income tax, regardless of the recipient’s income level.

Military retirement pay also receives favorable tax treatment in Wisconsin. All military retirement benefits are fully exempt from Wisconsin income tax. This exemption applies to pensions received for service in the U.S. armed forces, including the National Guard and Reserves.

Beyond Social Security and military pay, Wisconsin offers an age-based exemption for certain retirement income for individuals who meet specific criteria. For individuals aged 65 or older, a subtraction is available for up to $5,000 of retirement income if their federal adjusted gross income (AGI) is below certain thresholds. For 2024, these thresholds are $15,000 for single filers and $30,000 for married couples filing jointly. This subtraction can apply to various retirement income sources, including private and public employee pensions, annuities, and distributions from IRAs and qualified retirement plans.

This exemption is not automatic and requires meeting both the age and income qualifications. The specific amount of the subtraction may be reduced if the AGI exceeds the established limits. Taxpayers must carefully review their total income to determine eligibility for this valuable subtraction.

Wisconsin Residency Rules for Retirement Income

A full-year resident of Wisconsin is generally taxed on all income, regardless of where it was earned, including all retirement income sources. Determining full-year residency typically involves establishing domicile in Wisconsin for the entire tax year.

Part-year residents, individuals who move into or out of Wisconsin during the tax year, are taxed differently. They are taxed on all income received while a resident of Wisconsin. For the period they were a non-resident, they are only taxed on income sourced to Wisconsin. This distinction is important for retirement income, as a pension payment received while a Wisconsin resident would be fully taxable by the state, but a payment received after establishing residency elsewhere might not be, unless it’s specifically sourced to Wisconsin.

Non-residents of Wisconsin are only taxed on income derived from Wisconsin sources. Generally, retirement income such as pensions, annuities, and IRA distributions are not considered Wisconsin-sourced income for non-residents, even if the employer or plan administrator is located in Wisconsin. This means that an individual living outside Wisconsin would typically not owe Wisconsin income tax on their retirement distributions. Establishing domicile, which involves demonstrating a true, fixed, and permanent home, is the primary factor in determining tax residency for Wisconsin purposes.

Reporting Your Retirement Income in Wisconsin

The taxable amount of retirement income reported on your federal return, specifically your federal adjusted gross income (AGI), serves as the starting point for calculating your Wisconsin income tax. Wisconsin provides specific forms and schedules to account for retirement income and any applicable exemptions or subtractions.

Full-year residents typically file Wisconsin Form 1, Wisconsin Income Tax. On this form, the federal AGI is entered, and then modifications are made to account for Wisconsin-specific additions or subtractions. For example, the non-taxable portion of Social Security benefits or qualifying military retirement pay would be subtracted from the federal AGI on this form.

Part-year residents and non-residents generally file Wisconsin Form 1NPR, Nonresident & Part-Year Resident Income Tax Form. This form requires taxpayers to report their total income from all sources and then allocate only the income that is taxable to Wisconsin. Any qualifying retirement income subtractions would be applied on these forms to adjust the Wisconsin taxable income. If substantial retirement income is received without adequate withholding, individuals may need to make estimated tax payments throughout the year to avoid penalties.