How to Claim the Wisconsin Itemized Deduction Credit

The Wisconsin itemized deduction credit is a nonrefundable tax benefit available to qualifying taxpayers. This credit is a specific feature of Wisconsin’s state income tax system, offering a different way to gain a tax advantage from expenses that are itemized. It is not a deduction that reduces your taxable income, but rather a credit that directly reduces the amount of tax you owe.

Determining Eligibility for the Credit

All taxpayers face a choice when filing their returns: taking the standard deduction or itemizing deductions. The standard deduction is a fixed dollar amount that you can subtract from your income, with the amount varying based on filing status, age, and other factors. Itemizing involves listing out specific deductible expenses, such as medical costs and charitable gifts, and subtracting the total from your income. A taxpayer benefits from choosing the method that provides the larger deduction, thereby lowering their taxable income the most.

To be eligible for the Wisconsin itemized deduction credit, a taxpayer must choose to itemize deductions on their state tax return. This option is advantageous if your total itemized deductions exceed the Wisconsin standard deduction amount applicable to your filing status. The credit itself is available to individuals who were full-year or part-year residents of Wisconsin during the tax year. Even if you take the standard deduction on your federal return, you can still choose to itemize for Wisconsin purposes to claim this credit.

Information Needed for the Credit Calculation

To calculate the credit, you will use Schedule 1, which is located on page 4 of the main Wisconsin tax return, Form 1. The necessary information comes from your financial records for the tax year, and you will need documentation for expenses such as medical and dental payments, certain interest paid, gifts to charity, and casualty losses.

A primary difference between federal and Wisconsin rules concerns state and local taxes. While you can deduct state and local taxes (SALT), including income or sales tax and property taxes, on your federal Schedule A, these are not allowed for the Wisconsin itemized deduction credit. This is a common point of confusion, and it means your total Wisconsin itemized deductions will likely be lower than your federal itemized deductions.

For medical and dental expenses, you can only include the amount that exceeds 7.5% of your federal adjusted gross income (AGI). For interest paid, this includes home mortgage interest. Gifts to charity are limited to a percentage of your federal AGI. Casualty losses are only deductible if they are related to a federally-declared disaster.

Calculating the Itemized Deduction Credit

Once you have determined your total Wisconsin itemized deductions, the calculation of the credit itself can begin. The credit is calculated as 5% of the amount by which your total Wisconsin itemized deductions exceed your Wisconsin standard deduction. For instance, if your total allowable itemized deductions are $15,000 and your standard deduction is $13,000, the credit is calculated on the $2,000 difference. The initial credit would be $100 ($2,000 x 0.05).

This initial amount, however, is subject to income limitations. The credit is reduced if your Wisconsin adjusted gross income (AGI) exceeds certain thresholds. For the 2024 tax year, the reduction begins for taxpayers with a Wisconsin AGI above:

• $27,500 for those married filing jointly
• $19,000 for single filers
• $17,000 for those filing as head of household

If a taxpayer’s AGI is above the applicable threshold, the credit is reduced. The specific reduction calculation is detailed in the instructions for Form 1, ensuring the final credit amount is correctly determined based on your income level.

How to Claim the Credit on Your Tax Return

After you have calculated the final credit amount using Schedule 1, the last step is to claim it on your main state tax return, Form 1. The process is direct and requires transferring the calculated figure to the correct line on the form. You will find a specific line in the credits section of Form 1 designated for the itemized deduction credit.

Enter the final credit amount, after any income-based reductions have been applied, not the initial 5% calculation. The instructions for Form 1 will guide you to the precise line number for entering this credit. Proper entry ensures that the credit is correctly applied to reduce your overall tax liability.