New Retirement Income Break for Wisconsin Taxpayers

Good news for Wisconsin retirees; the state has expanded the retirement income tax break available on the 2025 Wisconsin income tax return, offering what could be one of the more meaningful state tax benefits for retirees in years.

What Changed?

Under current Wisconsin law, residents age 65 and older have long been able to subtract at least some retirement income from their state taxable income.  But beginning with the 2025 tax year, new rules dramatically expand that benefit for most retirees. [Link] [Link 2]

• If you are age 67 or older by the end of the tax year, you may exclude up to $24,000 of your qualifying retirement income from your Wisconsin taxable income
• If you are married filing jointly and both spouses qualify, that exclusion doubles to $48,000

This new exclusion replaces much smaller deductions that existed previously.

What Counts as “Retirement Income”?

The exclusion applies to qualified retirement income, generally including distributions from:

• Traditional IRAs and employer retirement plans (401(k), 403(b), pensions);
• Other retirement account payouts that are taxable federally, before applying this Wisconsin Rule.

Social Security benefits and other income already exempt under Wisconsin law are not part of the subtraction, because they are already tax-free in Wisconsin.

The Wisconsin Department of Revenue explains that this is a subtraction directly from Wisconsin income when you compute your state tax – meaning dollars subject to state tax shrink before you apply your standard deductions and tax rates. [Link]

Things to Know Before You File

You must be 67 or older by December 31 of the taxable year to claim the full expanded deduction.  The exclusion only applies to retirement income that is reportable and taxable by Wisconsin.

This is not a federal deduction – it is a state income tax benefit only.

This is an Election – and it Comes with a Tradeoff

If you take the retirement income subtraction, Wisconsin does not allow you to claim any of the Wisconsin individual income tax credits for that year as outlined under Wis. Stat. §71.10(4) [Link]

Bottom Line

Wisconsin’s updated retirement income exclusion offers potentially meaningful state tax breaks for older residents.  If you are approaching or past age 67, this provision could significantly lower your Wisconsin income tax.

If you have retirement income this year or think this will apply to your 2025 Return, reach out to our office to make sure you take full advantage of the exclusion on your Wisconsin income tax return.