Payroll Wisconsin, Unique Aspects of Wisconsin Payroll Law and Practice
Payroll is an essential part of running any business. The Wisconsin Department of Revenue wants to help make your payroll as simple and easy to understand as possible.
The Wisconsin Payroll Tax Publication covers the basics, but there are additional resources that provide more detail on topics like tax rates and exemptions. On this blog we’ll go over how to claim tax deductions, how payroll records should be kept, and what can happen if you’re not careful with your withholding.
The Payroll Tax Publication is published by the Wisconsin Department of Revenue and also includes a glossary, worksheets and other resources.
You can download a printed copy of this publication by going to this link: http://dwd.wisconsin.gov/drocweb/pub_print/pub-paytax-fiscal-year-2017.pdf . You can also access it online on the DOR’s website here: http://dwd.wisconsin.gov/drocweb/secure/documents_pdfs/PayrollTax__2017_.pdf .
Tax deductions are the annual adjustments to your gross tax payments. They are taken out of your employee’s paychecks either directly by you or indirectly by the state as withholding. Tax adjustments can be claimed during any time of the year and should be added to your current year total deductions, but must be claimed within three years. This means that all tax deductions should be claimed by April 15th of the following year after they were paid. Below is a list of the most common Wisconsin tax deductions:
For self-employment taxes, you can claim any deduction from your gross income that was taxable for federal purposes before being subtracted from net income to arrive at adjusted gross income (AGI). These include losses from prior years’ taxable income, most IRA contributions and amounts reported as foreign earned income.
Interest Paid on a Home Mortgage. If you itemize deductions on your federal returns, the interest paid for buying or maintaining a home can be deducted from Wisconsin net income. You can only deduct the interest paid on up to $750,000 in mortgage debt if you are married filing jointly ($375,000 if single or part of a married filing separately couple). This will be phased out dollar for dollar as your AGI goes over these amounts.
If you purchase a home during the year and haven’t paid more than 1/12th of the annual interest, you can only deduct that portion. If you buy a home during the year and pay more than 1/12th of your annual interest in one lump sum, you must spread the interest evenly over 12 months.
Interest Paid on Second Homes. If you have a second home that is not used exclusively for business purposes and itemize deductions on your federal return, the interest paid for that home can be deducted from Wisconsin net income. You can deduct interest on up to $750,000 in mortgage debt (if married filing jointly) ($375,000 if single or part of a married filing separately couple). This will be phased out dollar for dollar as your AGI goes over these amounts.
If you purchase a home during the year, and haven’t paid more than 1/12th of the annual interest, you can only deduct that portion. If you buy a home during the year, and pay more than 1/12th of your annual interest in one lump sum, you must spread the interest evenly over 12 months.
Home Equity Loans are not deductible for federal purposes but are deductible for Wisconsin purposes. You can only deduct interest paid on up to $750,000 in mortgage debt (if married filing jointly) ($375,000 if single or part of a married filing separately couple). This will be phased out dollar for dollar as your AGI goes over these amounts.
If you purchase a home during the year, and haven’t paid more than 1/12th of the annual interest, you can only deduct that portion. If you buy a home during the year and pay more than 1/12th of your annual interest in one lump sum, you must spread the interest evenly over 12 months. You can deduct this if you itemize on your federal return.
The following items are not deductible for federal or Wisconsin purposes: home equity loans, second homes that are used exclusively for business purposes, personal loans to family members and veterans’ benefits like VA Aid and Attendance.
Interest on education loans. Any interest paid to secure a loan for education (such as a student loan) is deductible from Wisconsin tax income if you itemize deductions on your federal returns.
Unemployment Taxes. You can deduct any unemployment taxes that were withheld during the tax year. Personal exemption and exemptions for dependents from your federal return can be used in Wisconsin as well if this was deducted on your federal return. If you paid federal taxes and these exemptions, you must also pay the corresponding Wisconsin unemployment tax rate of 0%.
Self-employment taxes cannot be deducted unless you are self-employed or running a business that would normally require it.
For example: You run a flower shop out of your home and you collect sales tax on the flowers that you sell. Sales tax is considered a business expense and you will want to deduct it on your federal income taxes. If Wisconsin also requires that you collect sales tax, you can claim the sales tax that you paid to the state as a deduction on your Wisconsin taxes.
Self-employment Retirement Contributions are not deductible for federal purposes but are deductible for Wisconsin purposes. If they were deducted on your federal return, they can be deducted from your Wisconsin net income as well. You can also spend up to $12,500 of your income each year as a contribution to a 401(k) plan.
You can take out IRA contributions and rollover amounts as well. There is no per-taxable-year dollar limit on these amounts, and you can include them in your total IRA contribution with the same tax treatment. You cannot use the $5,000 IRA deduction for married couples filing jointly ($2,500 if single or part of a married filing separately couple). Please consult with an expert if you are planning on contributing additional funds.
Please consult an attorney or accountant if you have any questions about checking to see how much is currently deductible from your federal return before making any withdrawals. This can change each year as well.
Medical Expenses. You can take a medical deduction if you itemize on your federal return and the expenses are not covered by insurance or any other source. For example, if you have to pay out of pocket for medical care related to an illness or injury, you can claim this as a deduction.
Self-employed Health Insurance Deduction is allowed on your Wisconsin income tax return. If you are self-employed, you may deduct health insurance premiums for yourself and your family members from your income (you cannot deduct the premiums paid for yourself only).
Conclusion
On federal taxes, you generally earn income and pay payroll taxes on a monthly basis. On state taxes, you generally earn income in a year and generally pay your taxes at the end of that year. A few exceptions may apply to this rule, but it is always good idea to consult an attorney or accountant before making any major financial decisions like this.
You can also find out more on how the two work together in our guide to federal vs. state tax returns.
Readers who have specific questions regarding what is deductable for business expenses should check our business expense guide. It will cover a lot of these topics and answer questions that we have seen come up frequently in the past on these topic areas.