Wisconsin in 2026: the retirement subtraction’s fine print, a wider 4.40% bracket, and the federal breaks that stop at the state line

The 2026 Wisconsin return will look like the 2025 return with the numbers nudged up for inflation. The big changes happened a year earlier, in the 2025–27 budget (2025 Wisconsin Act 15): a 4.40% bracket nearly twice as wide as before, and a new subtraction of up to $24,000 of pension, 401(k) and IRA income for anyone 67 or older. Both are in their second year. What 2026 added was mostly clarification and refusal. In April the Legislature spelled out the catch in the retirement subtraction: a return that claims it gives up every Wisconsin credit for that year. The same month the governor vetoed the bills that would have exempted tips and overtime, so both stay fully taxed. And the Wisconsin Department of Revenue confirmed that almost none of the federal 2025 tax law reaches the Wisconsin return, because Wisconsin still follows the Internal Revenue Code as it stood on December 31, 2022.

That last point does the most work. Wisconsin starts from federal adjusted gross income and applies its own rules under a frozen copy of the federal code. Anything Congress did in 2025 below the AGI line never arrives; anything above the line arrives only if the 2022 code agrees. So the federal deductions for tips, overtime, seniors and car-loan interest do nothing here, bonus depreciation is added back, and a few 2017 rules that lapsed federally come back to life in Wisconsin.

Year two of the 2025 budget

The 4.40% bracket. Before Act 15, a single filer moved from the 4.40% rate to 5.30% at $29,370 of taxable income, and a married couple at $39,150. For 2025 the budget pushed those lines to $50,480 and $67,300. That is a $190 cut for a single filer at $50,000 of taxable income: $21,110 of income taxed at 4.40% instead of 5.30%. The four rates themselves, 3.50%, 4.40%, 5.30% and 7.65%, did not change, and nothing passed in 2026 to change them. For 2026 the brackets index: the 4.40% bracket should run to about $51,950 single and $69,260 joint, with the Department’s official table due in December with the Form 1 instructions.

The retirement subtraction. A person who is 67 or older at year-end may subtract up to $24,000 of payments from qualified retirement plans and IRAs on Schedule SB, $48,000 on a joint return when both spouses are 67, $24,000 when only one is. No income limit. Inherited IRA distributions, required minimum distributions and Roth conversions count; commercial annuities do not. Social Security was never taxed here, and military, railroad and certain older government pensions were already exempt.

Adoption. The subtraction for adoption expenses rose to $15,000 per child.

April 2026: the catch, in writing

2025 Wisconsin Act 174, effective April 4, 2026, settled three questions about the retirement subtraction, all the state’s way. Age 67 is tested at year-end. A part-year resident prorates the $24,000 by the Wisconsin share of income. And a return that claims the subtraction may not claim any credit listed in section 71.10(4) of the statutes that year, including carryovers from earlier years, which are not delayed but lost.

The subtraction is optional. For a couple in the 5.30% bracket, $48,000 off the top is worth roughly $2,500 of tax, so most retirees take it. The people who should stop and compare are low-income seniors with a homestead credit, snowbirds paying tax to another state, and anyone with a large credit carryover. The full comparison is in Wisconsin for retirees.

Tips and overtime: vetoed

The federal 2025 law created deductions for tips and for overtime pay, both taken after adjusted gross income, so neither reaches Form 1. The Legislature passed its own versions, Senate Bill 36 (no tax on up to $25,000 of tips) and Assembly Bill 461 (no tax on overtime), and Governor Evers vetoed both on April 3, 2026 (verify). The $6,000 federal senior deduction and the car-loan interest deduction are in the same position: below the line, not adopted, invisible on the state return. Wisconsin’s own age breaks remain the $250 extra exemption at 65 and the retirement subtraction at 67.

The federal 2025 law, line by line

Wisconsin Tax Bulletin 234, published July 2026, is the Department’s list of where the 2026 Wisconsin return parts ways with the federal one. The pattern: Wisconsin keeps its 2022 code except for a few sections it has agreed to follow automatically, chiefly section 179 expensing, section 223 health savings accounts, section 529 plans, section 1202 small business stock and the percentages in the section 21 dependent care credit.

The 2017 rules that come back

This is the odd one. Several provisions of the 2017 federal tax law were written to expire after 2025. Congress made them permanent, but Wisconsin’s code is the 2022 version, in which they still expire. So for 2026 Wisconsin reverts to the pre-2018 rules, per Tax Bulletin 234:

• Moving expenses. The deduction and the employer-paid exclusion are back for everyone in Wisconsin, not just the military. A job-related move in 2026 is a Wisconsin subtraction even though it is not a federal deduction.
• The Pease limitation. The pre-2018 section 68 reduction, 3% of income over a threshold up to 80% of the deductions, applies when the Wisconsin itemized deduction credit is computed for higher earners.
• Charitable gifts. No federal 0.5% floor; the cash-gift limit stays at 50% of the contribution base, not 60%. Mortgage insurance premiums do not count. These affect only the figures feeding the 5% itemized deduction credit.

Smaller new laws

The 2025–26 session produced a handful of narrow changes, listed in Wisconsin Tax Bulletin 233 (April 2026):

• National Guard and Reserve pay (2025 Act 205): a new subtraction for federal pay to Guard and Reserve members, first available on the 2026 return.
• Stillbirth credit (2025 Act 241): $2,000 on a joint return, $1,000 otherwise, nonrefundable, for full-year residents, with a copy of the fetal death report attached. It is a section 71.10(4) credit, so it is among those forfeited by the retirement subtraction.
• Employer-provided child care credit (2025 Act 183): equal to the federal section 45F credit for Wisconsin facilities; passed through to owners of partnerships and S corporations.
• Financial exploitation losses (2025 Act 192): a subtraction for money lost to fraud that was reported to law enforcement and included in federal income, retroactive to 2024; earlier returns can be amended.
• Edvest and Tomorrow’s Scholar 529 contributions: the subtraction indexes to $5,280 per beneficiary for 2026, $2,640 married filing separately, up from $5,130.

Nothing passed that creates a child tax credit, cuts a rate, or indexes the homestead credit, whose $24,680 income limit and $1,168 maximum are expected to stand for 2026 but were not yet confirmed at this writing.

The November 3 ballot

Three statewide constitutional amendments were on the 2026 ballot; none changes a tax rate or the income tax. One, which passed, bars a governor from using the partial veto to create or raise a tax or fee in future budgets; it is prospective only. The other two concerned worship during emergencies and governmental discrimination and preferential treatment. Governor Evers did not run again, so the next opening for rate or credit changes is the 2027–29 budget, which reaches 2027 returns at the earliest.

What to expect on the 2026 return

• Wage earners: the same four rates, brackets and standard deduction indexed up a little. Tips and overtime fully taxed; a tipped worker whose federal refund grew should not expect the Wisconsin one to.
• Retirees 67 and older: the $24,000 / $48,000 subtraction, year two, now with a clear rule that it costs every credit that year. Social Security still untaxed.
• Families: the dependent care credit grows with the federal percentages; parents with $7,500 of employer dependent care benefits add back $2,500. The 529 subtraction is $5,280 per child. No new child credit.
• Homeowners: no change on the return. The school property tax credit is still about 12% of the bill, up to $300; the Lottery and Gaming and First Dollar credits are on the December property tax bill, not the return.
• Business owners, landlords and farmers: bonus depreciation added back on Schedule I; section 179 at $2.5 million allowed; the 7.9% pass-through entity tax election remains the Wisconsin route around the federal SALT cap.
• Job movers and Guard or Reserve members: new subtractions, for moving expenses and for federal Guard and Reserve pay.