How Wisconsin income tax works: federal AGI, a sliding standard deduction, four rates

Wisconsin builds its return on federal adjusted gross income, line 11 of Form 1040, not on federal taxable income. That one choice decides most of what follows. The federal standard deduction, itemized deductions, the $6,000 senior deduction and the new deductions for tips, overtime and car-loan interest are all taken below AGI, so none of them reach Form 1. In their place Wisconsin has its own machinery: a short list of additions and a longer list of subtractions, a standard deduction that starts at about $13,960 single and $25,840 joint and phases out as income rises, a $700 exemption per person, four rates from 3.50% to 7.65%, and a set of credits. There is no itemizing and no local income tax anywhere in the state.

The practical result is that two people with the same federal return can owe very different amounts of Wisconsin tax, and the differences come from places the federal return never looks. A retiree’s Social Security comes off entirely. Thirty percent of a long-term capital gain comes off. Tips and overtime that are now free of federal tax are taxed in full here. And the sliding standard deduction means the real marginal rate in the middle of the income range is higher than the 5.30% printed on the schedule.

Who files

A full-year resident files Form 1 and reports all income, wherever it was earned, with a credit on Schedule OS for tax paid to another state. A part-year resident or nonresident files Form 1NPR when Wisconsin gross income is $2,000 or more. Residents of Illinois, Indiana, Kentucky and Michigan who work in Wisconsin are the exception: under the reciprocity agreements their wages are taxed only at home, and Form W-220 stops the Wisconsin withholding. The resident filing thresholds for 2025 were $14,260 single, $26,510 married filing jointly and $18,220 head of household, a little higher at 65 or older; 2026 thresholds are to come. Social Security does not count toward them. Anyone below the threshold with Wisconsin withholding should file to get it back, and the earned income credit and homestead credit pay even when no tax is owed. Residency and reciprocity are covered in Moving to Wisconsin.

Where it starts: federal AGI

Line 1 of Form 1 is federal adjusted gross income. Everything the federal return subtracts above that line flows through: 401(k) and IRA contributions, HSA deposits, half of self-employment tax, student loan interest, the self-employed health insurance deduction. A $7,000 IRA contribution saves federal tax and Wisconsin tax at the same time, because it never arrives on Form 1. Everything the federal return subtracts below the line does nothing here. The $32,200 joint federal standard deduction, the deductions for tips, overtime, seniors and car-loan interest, the 20% qualified business income deduction, the $40,000 SALT cap and the charitable deduction for non-itemizers are all invisible to Wisconsin. A tipped worker who owes no federal tax on $8,000 of tips owes Wisconsin tax on all $8,000, about $352 in the 4.40% bracket. The Legislature passed its own bills to exempt tips and overtime in 2026 and the Governor vetoed both on April 3, 2026, so there is no Wisconsin version for this year. The details are in What’s new in Wisconsin for 2026.

The additions

Schedule AD adds a few items to AGI. For most households the list is short or empty.

Municipal bond interest. Wisconsin taxes interest on most municipal bonds, including most bonds issued by Wisconsin and its local governments, with exceptions for certain WHEDA and other specified issues. Federally tax-exempt interest from a brokerage 1099 is added here.

Bonus depreciation. A sole proprietor, landlord or farmer who claimed bonus depreciation federally adds it back and depreciates the asset over its life for Wisconsin. Section 179 expensing, up to the federal $2.5 million limit, is allowed. The totals match over the asset’s life; the timing does not.

Items Wisconsin does not exclude. Dependent care benefits above $5,000, employer student loan payments and employer contributions to a Trump account are federal exclusions Wisconsin has not adopted; the difference is added as Wisconsin wages. A state tax refund is never added, because it was never Wisconsin income.

The subtractions

Schedule SB is where Wisconsin gives money back. It is a long form, and it is the one most worth reading line by line.

Subtractions reduce Wisconsin income, which is also the figure the standard deduction is measured against. A subtraction therefore does double duty for anyone in the phase-out range: it cuts taxable income directly and it restores part of the standard deduction.

Social Security. Whatever amount of Social Security was taxed on the federal return is subtracted in full. There is no age test and no income limit. If none of it was taxed federally, there is nothing to subtract and nothing to tax.

The retirement subtraction at 67. New since 2025, and the most consequential line on the schedule for retirees. Up to $24,000 of pension, 401(k) and IRA income comes off for a person 67 or older at the end of the year, up to $48,000 on a joint return when both spouses are 67. The catch is that a return claiming it may not claim any Wisconsin credit that year, from the $300 school property tax credit to the homestead credit. The subtraction is optional, and the comparison is worked through in Wisconsin for retirees.

Capital gains. Wisconsin has no separate capital gains rate. Schedule WD subtracts 30% of net long-term gain, 60% for farm assets, and the remaining 70% is taxed at ordinary rates. A $20,000 long-term gain taxed at 0% federally is $14,000 of Wisconsin income. Short-term gains get nothing. Net losses are limited to $3,000 a year with unlimited carryforward.

Medical insurance premiums. Premiums paid with after-tax money, Medicare included, are subtracted with no percentage floor whether or not you itemize federally. Many people leave the line off because the federal return gave them nothing for it.

The standard deduction and exemptions

Wisconsin’s standard deduction is not a fixed number. It is a sliding scale that depends on Wisconsin income (federal AGI plus additions minus subtractions) and on filing status. For 2026 it starts at about $13,960 for a single filer and falls by 12 cents for every dollar of Wisconsin income over about $20,119, reaching zero at about $136,453. For a joint return it starts at about $25,840 and falls by 19.778 cents per dollar over about $29,039, reaching zero at about $159,690. Head of household starts higher than single ($17,520 for 2025, falling at 22.515% until it meets the single schedule at $57,210; 2026 figures to come). Married filing separately starts at half the joint amount ($11,930 for 2025; 2026 to come). The Department publishes the final 2026 table with the Form 1 instructions in December.

The 2025 figures are from the Department’s 2025 Form 1-ES instructions. The 2026 single and joint figures are indexed estimates awaiting the Department’s table.

On top of the standard deduction, line 10 of Form 1 allows a $700 exemption for the taxpayer, $700 for a spouse and $700 for each dependent, plus $250 more for each of the taxpayer and spouse who is 65 or older. The $250 is allowed only when the $700 is. These amounts are not indexed. A married couple with two children claims $2,800; a retired couple both over 65 claims $1,900.

The phase-out is what makes Wisconsin’s middle brackets steeper than they look. A single filer in the 5.30% bracket who earns one more dollar pays 5.3 cents on it and loses 12 cents of standard deduction, which is taxed at 5.3% too, for a combined marginal rate of about 5.9%. A joint filer in the same range loses 19.778 cents per dollar and faces about 6.35%. This is why Wisconsin withholding runs short for two-earner couples: each employer withholds as if its wages were the household’s only income and the full deduction were available.

The rates

Wisconsin taxable income (Wisconsin income minus the standard deduction and exemptions) is taxed in four brackets, indexed each year. The 2025 budget widened the second bracket substantially, so that the 4.40% rate now reaches about $51,950 single and $69,260 joint for 2026, up from $29,370 and $39,150 before the change.

Married filing separately uses brackets of half the joint amounts (2025: $9,790, $33,650 and $215,530). The 2025 brackets were $14,680 / $50,480 / $323,290 single and $19,580 / $67,300 / $431,060 joint. Part-year residents and nonresidents prorate the thresholds by the ratio of Wisconsin income to federal AGI.

Wages, interest, dividends, the taxable 70% of long-term gains, rent, gambling winnings and unemployment are all taxed on the same schedule. Gambling losses are not deductible for a casual gambler, because Wisconsin has no itemized deductions to put them on. No city, county or school district levies an income tax; localities add to the sales tax instead.

The credits

Wisconsin has no itemized deductions, and several of its credits exist to stand in for them. The nonrefundable credits reduce the tax but cannot take it below zero. The earned income credit, the homestead credit and the veterans property tax credit are refundable.

The Department’s rule is that a return claiming the 67+ retirement subtraction may not claim any Wisconsin income tax credit that year, which covers everything in this table. New for 2026: a nonrefundable stillbirth credit of $2,000 joint / $1,000 other.

The school property tax credit is the one nearly every household gets, and it is modest: 12% of a $4,000 property tax bill is $480, capped at $300, and the cap is reached at $2,500 of property tax or roughly $10,100 to $12,500 of annual rent. The itemized deduction credit matters mainly to people with a large mortgage or heavy medical costs and a standard deduction that has phased down. The family credits are covered in Credits and breaks for Wisconsin families.

Withholding and estimated payments

Wisconsin withholding is figured from Form WT-4, where the employee claims exemptions, and Form WT-4A can set an additional flat amount per paycheck. Pension payers will withhold Wisconsin tax on request, which matters here because pension and IRA income is taxed before 67 and above the subtraction after it.

Anyone who expects to owe $500 or more after withholding and credits must make estimated payments on Form 1-ES or online at revenue.wi.gov, due April 15, June 15 and September 15, 2026 and January 15, 2027. The safe harbor is 90% of this year’s tax or 100% of last year’s; Wisconsin has no 110% rule for higher earners. The people usually caught are the self-employed, landlords, retirees with pension income and no withholding, and anyone with a large capital gain.

How to file

Most returns go in electronically with the federal return. The Department’s free system, WisTax, files Form 1, Schedule H and amended returns for full-year residents with a Wisconsin driver’s license or ID. The return is due April 15, 2027. Wisconsin accepts a federal extension automatically, moving the filing date to October 15, 2027; it is an extension to file, not to pay, and tax paid late under an extension draws interest at 1% a month. Dates and forms are collected in Wisconsin calendar and forms.

What trips people up

• Expecting the federal tips, overtime or senior deduction to lower Wisconsin tax. None of them reach Form 1.
• Taking the 67+ retirement subtraction without checking which credits it cancels.
• Leaving off the medical care insurance premium subtraction because the federal return gave nothing for it.
• Forgetting the 30% capital gain exclusion on Schedule WD, or claiming it on a short-term gain.
• Municipal bond interest left off Schedule AD because it was tax-exempt federally.
• Two-earner couples under-withheld because each employer assumed a full standard deduction.
• Edvest contributions nobody mentioned, because the federal return did not ask.