Tax 2.89 Note
Examples: 1) Corporation E owns 100% of the stock of Corporation F. The corporations file consolidated federal income tax returns on a calendar-year basis. On March 10, Corporation E sells all of the stock of Corporation F to third parties, severing the affiliated group. For federal purposes, Corporations E and F file a consolidated return for the period from January 1 through March 10. Corporation F files a separate federal return for the period from March 11 through December 31. Since the taxable period for Wisconsin purposes is the same as the federal taxable year, Corporation F must also file 2 short-period Wisconsin returns. For the first taxable year, Corporation F must make one estimated tax installment payment for 100% of the estimated tax liability on or before March 15. For the second short period, Corporation F must make 3 estimated tax installment payments. The first payment for 50% of the estimated tax liability is payable on or before June 15. Since March is the last month of the first short period, April is treated as the first month of the second short period. The second and third payments, each for 25% of the estimated tax, are due on or before September 15 and December 15, respectively. If Corporation F's estimated tax for the period beginning March 11 and ending December 31 is $150,000, Corporation F must pay $75,000, 50% x $150,000 estimated tax payable, for the first installment and $37,500, 25% x $150,000 estimated tax payable, for each of the remaining 2 installments.
Tax 2.89 Note
2) Corporation G buys 100% of the stock of Corporation H on August 29. Both corporations compute their incomes on a calendar-year basis. Corporations G and H file a consolidated federal income tax return for the period from August 30 through December 31. Corporation H files a separate federal return for the period from January 1 through August 29. Since the taxable year is the same for Wisconsin and federal purposes, Corporation H must file 2 short-period Wisconsin returns. For the first short taxable year, 3 estimated tax installment payments are required, due on or before March 15, June 15 and August 15. Twenty-five percent of the estimated tax shall be paid for each of the installments due March 15 and June 15 and the balance of the estimated tax shall be paid for the installment due August 15. For the second short period, 2 installments are payable on or before November 15 and December 15. Since August is the last month of the first short period, September is treated as the first month of the second short period. The first installment payment, due November 15 is for 75% of the estimated tax and the payment due December 15 is for 25% of the estimated tax.
Annualized income installment payments.
Under ss. 71.09 (13) (d)
and 71.29 (9) (c)
, Stats., taxpayers may compute estimated tax installment payments by annualizing income for the months in the taxable year ending before the installment payment's due date. Corporations that are subject to a tax on unrelated business taxable income and virtually exempt entities may compute estimated tax installment payments by annualizing income for the months in the taxable year ending before the date one month before the due date for the installment payment. Annualized income installment payments shall be computed as follows:
(a) Computation of annualized income.
Taxpayers shall annualize income for the annualization period as follows:
Compute the Wisconsin net income for the annualization period, excluding adjustments which remain constant from period to period, such as net business loss carryforwards and the amortization of adjustments for changes in the method of accounting.
Calculate the annualization factor for the annualization period by dividing the number of months in the taxable year by the number of months in the annualization period.
Multiply the amount computed in subd. 1.
by the annualization factor computed in subd. 2.
Subtract from the result in subd. 3.
any adjustments excluded from the calculation of Wisconsin net income in subd. 1.
which remain constant for each period. Individuals shall also subtract the standard deduction.
Tax 2.89 Note
Example: Corporation J's taxable year begins January 1 and ends May 10. It has Wisconsin net income of $200,000 for the period from January 1 through February 28. Corporation J's annualization factor for that period is 2.5, calculated by dividing the 5 months of the taxable year by the 2 months of the annualization period. The annualized income for that period is $500,000, which is $200,000 Wisconsin net income x 2.5 annualization factor.
(b) Computation of installment payments.
Taxpayers shall calculate their estimated tax installment payments based on annualized income for the annualization period as follows:
Subtract from the gross tax under subd. 1.
any allowable tax credits, excluding estimated tax paid.
Multiply the net tax computed in subd. 2.
by the applicable percentage from sub. (7)
Tax 2.89 Note
Corporation K, a calendar year filer, merges into Corporation L on July 14. Corporation K elects the annualized income method for determining whether it paid sufficient estimated tax. Corporation K's Wisconsin net income is $300,000 for the first 2 months of the taxable year, $1,400,000 for the first 5 months of the taxable year, and $1,800,000 for the first 6 months of the taxable year. Corporation K has $9,000 of tax credits and its net tax due for the year ending July 14 is $135,000. Therefore, Corporation K's estimated tax payable is $121,500. For Corporation K's 7-month year, the annualization factors are 3.5 (7 months/2 months), 1.4 (7 months/5 months), and 1.167 (7 months/6 months). Corporation K calculates its required estimated tax payments as follows:
- See PDF for table
Tax 2.89 Note
Note: After the end of the taxable year, persons other than corporations shall use schedule U and corporations shall use form 4U to determine whether they have made sufficient estimated tax payments. Taxpayers with short taxable years shall adjust the computations on those forms as provided in this section.
For purposes of estimated tax requirements, a combined group of corporations under s. 71.255 (1) (a)
, Stats., or a commonly controlled group under s. 71.255 (2m)
, Stats., shall be treated as if it were a single corporation.
Tax 2.89 Note
See s. Tax 2.66
for rules relating to the payment of estimated taxes by combined groups.
Tax 2.89 History
Cr. Register, December, 1995, No. 480
, eff. 1-1-96; CR 10-095
: am. (4) (intro.), cr. (9) Register November 2010 No. 659
, eff. 12-1-10; CR 19-141
: am. (4) (b) to (d) Register September 2020 No. 777
, eff. 10-1-20.
Tax 2.89 Annotation
Cross References: See s. Tax 2.60 for combined reporting definitions relating to this section. See s. Tax 2.63 for rules relating to the controlled group election under s. 71.255 (2m), Stats. See s. Tax 2.65 for rules relating to the designated agent. See s. Tax 2.66 for rules relating to the payment of estimated taxes by combined groups.
The term “wages" means all remuneration for services performed by an employee for an employer unless specifically excepted under s. 71.63
The name by which remuneration for services is designated is immaterial. Thus, salaries, fees, bonuses, commissions on sales, commissions on insurance premiums, pensions and retirement pay, and supplemental unemployment benefits are wages within the meaning of the statute if paid as compensation for services performed by the employee for the employee's employer.
The basis upon which the remuneration is paid is immaterial in determining whether the remuneration constitutes wages. Thus it may be paid on the basis of piecework, or a percentage of the profits, and may be paid hourly, daily, weekly, monthly or annually.
Generally the medium in which the remuneration is paid is also immaterial. It may be paid in cash or in something other than cash, as, for example, stocks, bonds or other forms of property. However, s. 71.63 (6) (i)
, Stats., excludes from wages remuneration paid in any medium other than cash for services not in the course of the employer's trade or business. If services are paid for in a medium other than cash, the fair market value of the thing taken in payment is the amount to be included as wages. If the services were rendered at a stipulated price, in the absence of evidence to the contrary, such price will be presumed to be the fair value of the remuneration received. If a corporation transfers to its employees its own stock as remuneration for services rendered by the employee, the amount of such remuneration is the fair market value of the stock at the time of the transfer.
Remuneration for services, unless the remuneration is specifically excepted by the statute, constitutes wages even though at the time paid the relationship of employer and employee no longer exists between the person in whose employ the services were performed and the individual who performed them.
Amounts paid specifically — either as advances or reimbursements — for traveling or other bona fide ordinary and necessary expenses incurred or reasonably expected to be incurred in the business of the employer are not wages and are not subject to withholding. Traveling and other reimbursed expenses must be identified either by making a separate payment or by specifically indicating the separate amounts where both wages and expense allowances are combined in a single payment.
Amounts of so-called “vacation allowances" paid to an employee constitutes wages. Thus the salary of an employee on vacation, paid notwithstanding the absence from work, constitutes wages.
Any payments made by an employer to an employee on account of dismissal, that is, involuntary separation from the service of the employer, constitutes wages regardless of whether the employer is legally bound by contract, statute or otherwise to make such payments.
Any amount deducted by an employer from the remuneration of an employee is considered to be a part of the employee's remuneration and is considered to be paid to the employee as remuneration at the time the deduction is made. It is immaterial that any act or law requires or permits such deductions.
The term “wages" includes the amount paid by an employer on behalf of an employee, without deduction from the remuneration of or other reimbursement from the employee, on account of any tax imposed upon the employee by any taxing authority.
The value of any meals or lodging furnished to an employee by an employer is not subject to withholding if the value of the meals or lodging is excludable from the gross income of the employee under the provisions of the Internal Revenue Code, as defined in s. 71.01 (6)
Ordinarily, facilities or privileges, such as entertainment, medical services, or so-called “courtesy" discounts on purchases furnished or offered by an employer to employees generally, are not considered as wages subject to withholding, if the facilities or privileges are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, good will, contentment or efficiency of employees.
Tips or gratuities paid directly to an employee by a customer of an employer, are excepted from withholding only if the tips are non-cash tips or if the cash tips received during the course of a month are less than $20.
Upon amounts paid to an employee by the employee's employer under a wage continuation plan for a period during which the employee is absent from work on account of personal injuries or sickness if such amounts are exempt from withholding taxation under the Internal Revenue Code, as defined in s. 71.01 (6)
When, as provided by s. 71.66 (3)
, Stats., an employee certifies to an employer that the employee incurred no liability for income tax for the preceding taxable year and anticipates not incurring a liability for the current taxable year.
Tax 2.90 History
Cr. Register, January 1963, No. 85
, eff. 2-1-63; r. and recr. (12), cr. (15), Register, March, 1966, No. 123
eff. 4-1-66; am. (2), (14) and (15), Register, July, 1978, No. 271
, eff. 8-1-78; am. (1), (4), (5), (8), (12), (13) and (15), Register, July, 1989, No. 403
, eff. 8-1-89; CR 13-012
: r. (6) Register August 2013 No. 692
, eff. 9-1-13.
Withholding; fiscal year taxpayers. Tax 2.91(1)(1)
Except as provided in sub. (2)
, amounts withheld pursuant to ss. 71.64
, Stats., in any calendar year shall be allowed as a credit for the taxable year beginning in the calendar year. If more than one taxable year begins in a calendar year, the amount shall be allowed as a credit for the last taxable year beginning in that calendar year.
Any employee who reports income for taxation to the state of Wisconsin on a taxable year other than the calendar year shall be allowed as a credit for the fiscal year amounts withheld by his or her employer in the fiscal year, provided the employer, on or before the end of the first month following the close of the fiscal year, shall voluntarily furnish the employee with 2 legible copies and the department of revenue with one legible copy of a written statement, adapted to the fiscal year, but otherwise consistent with the written statement referred to in ss. 71.65 (1)
and 71.71 (1)
, Stats., and the employee files a copy of the statement along with the fiscal year return.
Tax 2.91 History
Cr. Register, March, 1963, No. 87
, eff. 4-1-66; am. Register, February, 1975, No. 230
, eff. 3-1-75; am. Register, July, 1989, No. 403
, eff. 8-1-89.
Withholding tax exemptions. Tax 2.92(1)(1)
An employee may claim the same number of withholding exemptions for Wisconsin as are allowable for federal withholding purposes. The maximum number of federal exemptions allowable is computed by completing a federal form W-4, “Employee's Withholding Allowance Certificate." An employee claiming the same number of exemptions for both state and federal purposes is not required to complete a form WT-4, “Employee's Wisconsin Withholding Exemption Certificate." An employee who claims a different number of withholding exemptions for Wisconsin than for federal withholding purposes shall provide his or her employer with a completed form WT-4.
An employee who had incurred no Wisconsin income tax liability for the preceding taxable year and anticipates no liability for a current taxable year shall be exempt from withholding if the employee provides his or her employer with a completed form WT-4, “Employee's Wisconsin Withholding Exemption Certificate" which shows a claim for total exemption. For this purpose, a tax liability is “incurred" if the employee had for the preceding year, or anticipates for the current year, a net Wisconsin income tax due, i.e., gross tax less personal exemptions on a Wisconsin return. If an employee is married, the Wisconsin marital property laws for tax computation shall be considered in determining if the employee may claim this exemption.
Effective April 1, 1979, an employee may enter into a written agreement with his or her employer to withhold a lesser amount of tax than indicated in the withholding tax tables, if the employee determines the lesser amount approximates the employee's anticipated income tax liability for the year. Form WT-4A, “Wisconsin Employee Withholding Agreement", shall be used for this purpose and a completed copy of the form shall be sent by the employee to the department within 10 days after it is filed with the employer. If the employee fails to notify the department within the required 10 days, he or she shall be subject to a penalty of $10, as provided by s. 71.83 (1) (a) 5.
The agreement between the employee and employer shall be renewed each year. For calendar year taxpayers, the agreement expires on April 30 of the year immediately following the year in which it was entered into. For fiscal year taxpayers, the agreement expires 4 months following the close of the fiscal year in which entered into. To renew the agreement, an employee shall provide a new form WT-4A to his or her employer and submit a copy of the completed form to the department as provided in par. (a)
. If a new form WT-4A is executed before the expiration dates described in this paragraph, it shall supersede the previous agreement.
If the department determines that an agreement is incomplete, incorrect, or would result in an insufficient amount of tax being withheld, the department may void the agreement by notification to the employer and employee.
Section 71.83 (1) (b) 4.
, Stats., provides that any employee who enters into an agreement with the intent to defeat or evade the proper withholding of tax, shall be subject to a penalty equal to the difference between the amount required to be withheld and the amount actually withheld for the period that the incorrect agreement was in effect.
Under s. 71.83 (2) (a) 5.
, Stats., any employee who willfully supplies an employer with false or fraudulent information regarding an agreement with the intent to defeat or evade the proper withholding of tax may be imprisoned not more than 6 months or fined not more than $500, plus the costs of prosecution, or both.
Tax 2.92 History
Cr. Register, November, 1977, No. 263
, eff. 12-1-77; am. (1) and (2), cr. (3), Register, September, 1983, No. 333
, eff. 10-1-83; am. (1), (2) and (3) (c), Register, July, 1989, No. 403
, eff. 8-1-89; correction in (3) (a), (d), (e) made under s. 13.92 (4) (b) 7.
, Stats., Register November 2011 No. 671
Withholding from wages of a deceased employee and from death benefit payments. Tax 2.93(1)(1)
Section 71.64 (1) (a)
, Stats., requires employers to withhold Wisconsin income tax from payments of wages “to an employee". Various types of payments are made to the estate or to beneficiaries of a deceased employee which resulted from the deceased person's employment. The department shall follow the federal internal revenue service's policy in determining whether withholding of income tax is required from these payments.
Payments subject to withholding.
An uncashed check originally received by a decedent prior to the date of death and reissued subsequently to the decedent's personal representative shall be subject to withholding of Wisconsin income tax.
Payments not subject to withholding.
The following types of payments to a decedent's personal representative or heir shall not be subject to withholding of Wisconsin income tax:
Payments representing wages accrued to the date of death but not paid until after death.
Death benefits such as pensions, annuities and distributions from a decedent's interest in an employer's qualified stock bonus plan or profit sharing plan, as provided in s. 71.63 (6) (j)
Tax 2.93 History
Cr. Register, February, 1978, No. 266
, eff. 3-1-78; am. (1) and (3) (d), Register, July, 1989, No. 403
, eff. 8-1-89.
Reduction of delinquent interest rate under s. 71.82 (2) (d), Stats. Tax 2.935(1)(1)
The secretary may reduce the delinquent interest rate from 18% to 12% per year when the secretary determines the reduction fair and equitable, if the person from whom delinquent taxes are owing:
Requests the reduction in writing, addressed to the Wisconsin Department of Revenue, Compliance Bureau, P.O. Box 8901, Madison, WI 53708.
Clearly indicates why it is fair and equitable for the rate of interest to be reduced. Information regarding one or more of the factors under sub. (2)
may be indicated.
Is current in all return and report filings and tax payments for all matters other than the delinquencies for which interest reduction is being sought.
Pays the withholding taxes, reduced amount of interest and any penalties associated with them within 30 days of receiving notice from the department of the reduction.
Factors for secretary's consideration.
In determining whether an interest rate reduction is fair and equitable, the secretary may consider the following factors:
The taxpayer's prior record of reporting and payment to the department.
If the taxpayer is a natural person, any circumstances which may have prevented payment such as death, imprisonment, hospitalization or other institutionalization.
Any unusual circumstances which may have caused the taxpayer to incur the delinquency or prevent its payment.
Any other factor which the secretary believes pertinent.
Determination not appealable.
The secretary's determination under this rule is not appealable.
Tax 2.935 History
Cr. Register, February, 1979, No. 278
, eff. 3-1-79; am. (1) (intro.), Register, September, 1983, No. 333
, eff. 10-1-83; CR 19-141
: am. (1) (a) Register September 2020 No. 777
, eff. 10-1-20.
Tax-sheltered annuities. Tax 2.94(1)(a)(a)
Payments for a tax-sheltered annuity purchased for an employee by a public school system or by an exempt educational, charitable or religious organization, which are excludable from the employee's gross income in the year of payment under section 403
(b) of the Internal Revenue Code, are also excludable in the year of payment for Wisconsin income tax purposes.
Tax 2.94 Note
Note: The exclusion from gross income as provided in sub. (1) (a) is effective January 1, 1965, when Wisconsin adopted the Internal Revenue Code as the basis for computing Wisconsin taxable income. Payments prior to January 1, 1965, were taxable for Wisconsin income tax purposes.
All benefits paid under tax sheltered annuity contracts, including withdrawals, death benefits or annuities, are included in federal taxable income when received. The Wisconsin treatment is described in subs. (2)
Milwaukee city and county employee and state teachers retirement systems.
Normal retirement benefits received from systems enumerated in s. 71.05 (1) (a)
, Stats., are exempt as provided by that section. The exemption is limited to payments from the accounts of those persons who were members of any of the systems on December 31, 1963, or who were retired from any of the systems on or before December 31, 1963. However, benefits received from tax-sheltered annuity deposits described in sub. (1)
administered by these systems do not qualify for the exclusion from Wisconsin taxable income provided by s. 71.05 (1) (a)
, Stats. Tax-sheltered annuity benefits shall be included in gross income for Wisconsin income tax purposes as they are for federal income tax purposes, except as provided in sub. (3)
Tax-sheltered annuity benefits received by retired teachers on and after January 1, 1974, shall be included in taxable income. No subtraction modification from federal adjusted gross income may be allowed, except as provided in par. (b)
If a school system purchased a tax-sheltered annuity for an employee prior to January 1, 1965, and the employee paid a Wisconsin income tax on the tax-sheltered annuity deposit which was used to pay the 1964 annuity premium, a subtraction modification under s. 71.05 (6) (b) 3.
, Stats., shall be allowed for the tax-sheltered annuity benefits received on or after January 1, 1974, which are included in federal adjusted gross income and upon which the employee previously paid a Wisconsin income tax. The allowable subtraction modification is the amount of deposit on which the Wisconsin tax was previously paid less that portion, if any, of the tax-sheltered annuity benefits excludable from Wisconsin taxable income because of receipt prior to January 1, 1974.