Tax 2.93(3)(a)(a) Payments representing wages accrued to the date of death but not paid until after death. Tax 2.93(3)(d)(d) 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), Stats. Tax 2.93 HistoryHistory: Cr. Register, February, 1978, No. 266, eff. 3-1-78; am. (1) and (3) (d), Register, July, 1989, No. 403, eff. 8-1-89. Tax 2.935Tax 2.935 Reduction of delinquent interest rate under s. 71.82 (2) (d), Stats. Tax 2.935(1)(1) Procedures. 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: Tax 2.935(1)(a)(a) Requests the reduction in writing, addressed to the Wisconsin Department of Revenue, Compliance Bureau, P.O. Box 8901, Madison, WI 53708. Tax 2.935(1)(b)(b) 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. Tax 2.935(1)(c)(c) 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. Tax 2.935(1)(d)(d) 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. Tax 2.935(2)(2) Factors for secretary’s consideration. In determining whether an interest rate reduction is fair and equitable, the secretary may consider the following factors: Tax 2.935(2)(a)(a) The taxpayer’s prior record of reporting and payment to the department. Tax 2.935(2)(c)(c) If the taxpayer is a natural person, any circumstances which may have prevented payment such as death, imprisonment, hospitalization or other institutionalization. Tax 2.935(2)(d)(d) Any unusual circumstances which may have caused the taxpayer to incur the delinquency or prevent its payment. Tax 2.935(2)(e)(e) Any other factor which the secretary believes pertinent. Tax 2.935(3)(3) Determination not appealable. The secretary’s determination under this rule is not appealable. Tax 2.935 HistoryHistory: 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 2.94Tax 2.94 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 NoteNote: 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.
Tax 2.94(1)(b)(b) 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) and (3). Tax 2.94(2)(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 2.94(3)(a)(a) 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). Tax 2.94(3)(b)(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. Tax 2.94 NoteExamples: In each example below, assume the employee is a taxpayer who files tax returns on a calendar year basis.
Tax 2.94 Note1) An employee made a deposit of $200 for the purchase of a tax-sheltered annuity in 1964, and this amount was included in Wisconsin taxable income. When the employee retires after December 31, 1973, a subtraction modification under s. 71.05 (6) (b) 3., Stats., is permitted for the first $200 of tax-sheltered annuity benefits received. All subsequent benefits are taxable with no subtraction modification allowed. Tax 2.94 Note2) An employee made a deposit of $300 for the purchase of a tax-sheltered annuity in 1964, and this amount was included in Wisconsin taxable income. The employee retired prior to January 1, 1974, and $120 of the benefits received were not included in Wisconsin taxable income. A subtraction modification under s. 71.05 (6) (b) 3., Stats., is permitted for the next $180 ($300 - $120) received after December 31, 1973. All subsequent benefits are taxable with no subtraction modification allowed. Tax 2.94 Note3) An employee made a deposit of $160 for the purchase of a tax-sheltered annuity in 1964, and this amount was included in Wisconsin taxable income. The employee retired prior to January 1, 1974, and treated $200 of the benefits as nontaxable for Wisconsin income tax purposes. All the benefits received after December 31, 1973, are taxable with no subtraction modification allowed.
Tax 2.94 HistoryHistory: Cr. Register, April, 1978, No. 268, eff. 5-1-78; r. (1) (a) and (3) (b), renum. (1) (b), (c) and (3) (c) to be (1) (a), (b) and (3) (b) and am. (a) and (3) (b), am. (2) and (3) (a), Register, June, 1991, No. 426, eff. 7-1-91. Tax 2.95Tax 2.95 Reporting of installment sales by natural persons and fiduciaries. Tax 2.95(1)(1) General. The Wisconsin tax treatment of installment sales by natural persons and fiduciaries is determined under the Internal Revenue Code in effect under s. 71.01 (6), Stats. Installment sales may be made of either real or personal property. Because for Wisconsin purposes, at the time of the sale, the seller may be either a resident or nonresident, and the property may be realty or personalty, tangible or intangible, and may be located within or without Wisconsin, special situations that are not addressed in the Internal Revenue Code may arise which affect the reporting of the sale. Tax 2.95(2)(2) Situs of income. Under s. 71.04 (1) (a), Stats., all income or loss of resident individuals shall follow the residence of the individual. A nonresident’s income or loss derived from the sale of real property or tangible personal property follows the situs of the property. Interest income of a nonresident and income from the sale of intangible personal property follows the individual’s residence. Tax 2.95(3)(3) Taxation of proceeds from installment sale of intangible personal property. Tax 2.95(3)(a)(a) Resident seller. If the seller is a Wisconsin resident, the portions of each installment payment that represent gain and interest income from the sale which are received while the seller is a resident of this state are taxable by Wisconsin. If the resident seller abandons Wisconsin domicile and establishes residence in another state, neither the gain nor interest payments received while a nonresident is taxable by Wisconsin. Tax 2.95(3)(b)(b) Nonresident seller. If the seller is not a Wisconsin resident, the portions of each installment payment that represent gain and interest income from the sale are not taxable by Wisconsin. If the seller subsequently becomes a Wisconsin resident after the sale, the portion of each installment payment received after becoming a Wisconsin resident representing gain is not taxable by Wisconsin, but the portion representing interest on the installment note is taxable by Wisconsin. Tax 2.95(4)(4) Taxation of proceeds from installment sale of real property or tangible personal property. Upon the sale of real property or tangible personal property reported under the installment method: Tax 2.95(4)(a)1.1. If the property is located in Wisconsin and the seller is a Wisconsin resident, the portion of each installment payment that represents gain and interest income from the sale is taxable by Wisconsin. Tax 2.95(4)(a)2.2. If the property is located in Wisconsin and the seller is not a Wisconsin resident, the portion of each installment payment that represents gain is taxable by Wisconsin. Interest income of a nonresident is not taxable by Wisconsin. Tax 2.95(4)(b)(b) Out-of-state property. For property located outside Wisconsin which is sold in taxable year 1975 or thereafter: Tax 2.95(4)(b)1.1. If the sale occurs while the seller is a Wisconsin resident and the seller is a Wisconsin resident at the time installment payments are received, the portions of each of these installment payments that represent gain and interest income from the sale are taxable by Wisconsin. However, if the seller no longer is a Wisconsin resident when installment payments are received, the portions of each of these installment payments that represent gain and interest income from the sale are not taxable by Wisconsin. Tax 2.95(4)(b)2.2. If the sale occurs while the seller is not a Wisconsin resident and the seller is a Wisconsin resident at the time installment payments are received, the portion of each of the installment payments that represents gain is not taxable by Wisconsin, but interest income from the sale is taxable. However, if the seller is not a Wisconsin resident at the time installment payments are received, the portions of each of these installment payments that represent gain and interest income from the sale are not taxable by Wisconsin. Tax 2.95 NoteNote: For taxable years prior to 1975, s. 71.07 (1), Stats., provided that for Wisconsin income taxation purposes, income or loss derived from the sale of real property or tangible personal property followed the situs of the property. Interest income and income or loss from the sale of intangible personal property followed the individual’s residence. Therefore, if real property or tangible personal property which was located outside Wisconsin was sold on the installment method prior to taxable year 1975: Tax 2.95 Note1) The portion of each installment payment that represents gain is not taxable by Wisconsin regardless of whether the seller is a resident or nonresident of Wisconsin at the time payments are received, regardless of whether the payments are received in 1975 or in any subsequent year.
Tax 2.95 Note2) The portion of each installment payment that represents interest income is taxable by Wisconsin if the seller is a Wisconsin resident at the time payments are received. If the seller is a nonresident of Wisconsin at the time payments are received, the interest portion is not taxable by Wisconsin.
Tax 2.95(5)(5) Taxation of proceeds from sale of installment obligation. If the sale of an installment obligation, i.e., an individual’s right to unpaid installments from the sale of property, occurs while the seller is a Wisconsin resident, gain or loss on the sale is taxable by Wisconsin. Internal Revenue Code section 453B provides that any gain or loss resulting from the disposition of an installment obligation shall be considered as resulting from the sale or exchange of the property in respect of which the installment obligation was received. Therefore, if the sale of an installment obligation occurs while the seller is not a Wisconsin resident, gain or loss on the sale is taxable by Wisconsin where the installment obligation resulted from the sale of real property or tangible personal property located in Wisconsin. Tax 2.95 NoteExample: In 2016 an Illinois resident sells Wisconsin real estate for $140,000. The adjusted basis of the property is $70,000 which results in a gross profit percentage of 50%. The seller receives a down payment of $40,000 and an installment note of $100,000 for the balance. In 2017, after receiving a $60,000 payment on the principal plus interest of $4,000, the installment obligation is sold for $45,000. The seller’s Wisconsin taxable income from these transactions is as follows:
Tax 2.95 HistoryHistory: Cr. Register, January, 1979, No. 277, eff. 2-1-79; r. and recr. (2) and (5) (b) 2.a. and b., am. (4) (a) and (b), (5) (b) 1.a., Register, September, 1983, No. 333, eff. 10-1-83; r. and recr. (1), r. (2), (3) (a), 5. (b) 1. (intro.), a. and b., renum. (3) (b) to be (2) and am., renum. (4) to be (3) and am., renum. (5) (intro.) (a) to be (4) (intro.) (a.), renum. (5) (b) 2. (intro.) a. and b. to be (4) (b) (intro.) 1. and 2. and am., renum. (6) to be (5) and am., Register, March, 1991, No. 423, eff. 4-1-91; CR 19-141: am. (5) (Example) Register September 2020 No. 777, eff. 10-1-20. Tax 2.955Tax 2.955 Credit for taxes paid to other states. Tax 2.955(1)(1) Definition. In this section, “state” means the 50 states of the United States and the District of Columbia, but does not include the commonwealth of Puerto Rico or the several territories organized by Congress. Tax 2.955(2)(a)(a) Except as provided in subs. (2m) and (3), an income tax credit may be claimed by a Wisconsin resident individual, estate, or trust for any net minimum tax or income tax paid to another state by the resident upon income of the individual, estate or trust taxable by that state. Tax 2.955(2)(b)(b) Except as provided in subs. (2m) and (3), an income tax credit may be claimed by a Wisconsin resident shareholder, partner, or member in a tax-option (S) corporation, partnership, or limited liability company for any net minimum tax, income tax, or franchise tax paid by that shareholder, partner, or member to another state on or measured by income of the tax-option (S) corporation, partnership, or limited liability company. Tax 2.955(2)(c)(c) Except as provided in subs. (2m) and (3), an income or franchise tax credit may be claimed by a tax-option (S) corporation, partnership, or limited liability company which makes an election to be taxed at the entity level under s. 71.21 (6) (a) or 71.365 (4m) (a), Stats., for any net minimum tax, income tax, or franchise tax paid by that entity to another state upon income of the entity and net minimum tax, income tax, or franchise tax paid by that entity to another state upon income of the entity on behalf of its Wisconsin resident shareholders, partners, and members on a combined or composite return filed with the other state. Tax 2.955(2m)(a)(a) The credit may only be allowed if the income taxed by the other state is also considered income for Wisconsin tax purposes. Tax 2.955(2m)(b)(b) The credit may not exceed the net tax paid to Wisconsin on income that is taxable to both Wisconsin and the other state. Tax 2.955(2m)(c)(c) The limitation in par. (b) does not apply to income that is taxable to both Wisconsin and to Minnesota, Iowa, Illinois, or Michigan. Tax 2.955(3)(3) Credits not allowed. An income tax credit may not be allowed for: Tax 2.955(3)(a)(a) Income tax paid to Illinois, Indiana, Kentucky, or Michigan on personal service income earned in these states included under a reciprocity agreement. Tax 2.955 NoteNote: Refer to s. Tax 2.02 for information concerning reciprocity. Tax 2.955(3)(b)(b) Minimum tax, income tax, or franchise tax paid to another state on income not considered taxable income for Wisconsin tax purposes. Tax 2.955(3)(c)(c) Minimum tax paid to a state which does not classify the minimum tax as an income tax. Tax 2.955(3)(d)(d) Income tax paid to a county, city, village, town or foreign country. Tax 2.955(3)(e)(e) Minimum tax, income tax, or franchise tax paid to another state by a Wisconsin resident individual on income derived from a tax-option (S) corporation, partnership, or limited liability company that elects to be taxed on the income at the entity level under s. 71.21 (6) (a) or 71.365 (4m) (a), Stats. Tax 2.955 NoteExample: A Wisconsin resident shareholder in a tax-option (S) corporation pays income tax to Iowa on her proportionate share of income from the corporation that is reportable and taxable on both her Wisconsin and Iowa income tax returns for the same taxable year. The tax-option (S) corporation elects to be taxed at the entity level under s. 71.365 (4m) (a), Stats., and files and pays Wisconsin franchise tax. The Wisconsin resident shareholder may not claim a credit for net income tax paid to Iowa since the income from the tax-option (S) corporation is not taxable on her Wisconsin income tax return. Tax 2.955(3)(f)(f) A tax-option (S) corporation, partnership, or limited liability company electing to be taxed on income at the entity level under s. 71.21 (6) (a) or 71.365 (4m) (a), Stats., if the shareholder, partner, or member pays the tax to the other state on their proportionate share of income from the entity. Tax 2.955 NoteExample: A partnership elects to be taxed on income at the entity level under s. 71.21 (6) (a), Stats., and pays Wisconsin income tax on income that is also taxable to Iowa for the same taxable year. A Wisconsin resident partner files and pays Iowa income tax on his proportionate share of income from the partnership. The partnership may not claim a credit for tax paid to Iowa since the partnership did not pay the Iowa income tax. Tax 2.955(4)(4) How to claim a credit. The amount of income tax credit claimed shall be entered on the line provided for net income tax paid to other states on Wisconsin income tax return Form 1, Form 1NPR, Form 2, or for tax-option (S) corporations and partnerships, Schedule 5S-ET or 3-ET. The credit may not exceed the Wisconsin net tax. To support the credit claimed, the following information shall be submitted with Wisconsin Form 1, Form 1NPR, Form 2, Form 3, or Form 5S: Tax 2.955(4)(a)(a) For a Wisconsin resident individual, estate, or trust, attach copies of the other state’s income tax return and the wage statements, if any, to the Wisconsin income tax return. Tax 2.955(4)(b)(b) For a Wisconsin resident shareholder in a tax-option (S) corporation, the federal subchapter S status of which is recognized by the other state, partner in a partnership, or member in a limited liability company: Tax 2.955(4)(b)1.1. If a Wisconsin resident shareholder, partner, or member files an individual income tax return with that state, submit a copy of the other state’s income tax return with the Wisconsin income tax return. Tax 2.955(4)(b)2.2. If the corporation, partnership, or limited liability company files a combined or composite return with that state on behalf of its shareholders, partners, or members who are nonresidents of that state and pays the tax on their proportionate share of the income earned there, submit with the Wisconsin income tax return either a copy of the Wisconsin Schedule 5K-1 or 3K-1 on which is shown the shareholder’s, partner’s, or member’s share of tax paid to that state, or a letter as provided in par. (d). Tax 2.955(4)(b)3.3. If the corporation, partnership, or limited liability company files a corporate or partnership income or franchise tax return with that state and pays tax on or measured by income earned there that is attributable to its shareholders, partners, or members who are nonresidents of that state, submit with the Wisconsin income tax return either a copy of the Wisconsin Schedule 5K-1 or 3K-1 on which is shown the shareholder’s, partner’s, or member’s share of tax paid to that state, or a letter as provided in par. (d). Tax 2.955(4)(c)(c) For a Wisconsin resident shareholder in a tax-option (S) corporation, the federal subchapter S status of which is not recognized by the other state, if the corporation pays an income or franchise tax on or measured by the income earned there, submit with the Wisconsin income tax return either a copy of the Wisconsin Schedule 5K-1 on which is shown the shareholder’s share of tax paid to that state, or a letter as provided in par. (d). Tax 2.955(4)(d)(d) If the tax-option (S) corporation, partnership, or limited liability company is not subject to Wisconsin’s income or franchise tax, a Wisconsin resident shareholder, partner, or member shall submit with the Wisconsin income tax return a letter provided by the corporation, partnership, or limited liability company in lieu of Wisconsin Schedule 5K-1 or 3K-1 as required in pars. (b) 2. and 3. and (c). The letter shall include a schedule showing the shareholder’s, partner’s, or member’s proportionate share of the items of income taxable by that state, the adjusted gross income, and the net tax paid. Tax 2.955(4)(e)1.1. If the corporation, partnership, or limited liability company files a corporate or partnership income or franchise tax return with another state, submit a copy of the other state’s income or franchise tax return with Wisconsin Form 3 or 5S. Tax 2.955(4)(e)2.2. If the corporation, partnership, or limited liability company files a combined or composite return with another state on behalf of its shareholders, partners, or members who are nonresidents of that state and pays tax on their proportionate share of the income taxable to the other state, submit a copy of the other state’s combined or composite income or franchise tax return with Wisconsin Form 3 or 5S. Tax 2.955(5)(5) Year in which to claim income tax credit. The credit for income tax paid to another state shall be claimed on the Wisconsin return for the year in which the out-of-state income is considered taxable Wisconsin income. Tax 2.955 NoteExample: A Wisconsin resident receives income of $4,000 in 2018 from rental property located in Iowa. The person files a 2018 declaration of estimated tax of $200 with Iowa, with $150 of estimated tax payments being made in 2018 and the fourth quarter payment of $50 being made in January 2019. The Iowa income of $4,000 is reported as income on the 2018 Iowa and Wisconsin returns. The 2018 Iowa income tax return shows the following:
