By Samantha A. Fong, Esq., Checkpoint News
The Wisconsin Department of Revenue has issued a tax bulletin that, among other things, details differences between federal and Wisconsin tax law for 2026. (Wisconsin Dept. Rev. Tax Bulletin No. 234, 07/01/2026.)
Differences between federal and Wisconsin tax law
Wisconsin generally follows the federal IRC as amended to December 31, 2022. Therefore, most of the changes made to the federal IRC by the One Big Beautiful Bill Act (“OBBBA” P.L. 119-21) do not apply for Wisconsin tax purposes. In addition, tax provisions that were temporarily suspended or limited by the 2017 Tax Cuts and Jobs Act (P.L. 115-97) are restored for Wisconsin purposes.
- Trump accounts: The federal law created a new tax-advantaged savings account for individuals who are less than 18 years old (IRC § 530A). Accounts are first able to accept contributions as of July 4, 2026. Wisconsin does not recognize Trump accounts including any income related to the accounts.
- Dependent care benefits: For federal purposes, to $7,500 ($3,750 if married filing separately) of dependent care assistance may be excluded from income (IRC § 129). Wisconsin permits up to $5,000 ($2,500 if married filing separately) to be excluded.
- Student loan forgiveness (death or disability): For federal purposes, qualified student loans forgiven due to the death or disability of the student are exempt from income. For Wisconsin purposes, the death or disability exemption only applied to amounts discharged during 2018 through 2025. Amounts discharged in 2026 are not automatically exempt but may qualify for other exceptions.
- Employer payments of student loans: For federal purposes, payments by an employer of principal and interest on an employee’s qualified education loans may be treated as qualified education assistance and excluded from income (IRC § 127). For Wisconsin tax purposes, these payments do not qualify for the exclusion and are taxable wages to the employee.
- Moving expense reimbursement and deduction: For federal tax purposes, only members of the U.S. Armed Forces and employees and appointees of the intelligence community are eligible for the employer reimbursement exclusion and expense deduction (IRC § 132(g)). Wisconsin follows the exclusion and deduction as existed prior to the 2017 Tax Cuts and Jobs, and does not limit the deduction solely to members of the U.S. Armed Forces and employees and appointees of the intelligence community.
- Qualified hazardous duty areas: For federal tax purposes, qualified hazardous duty areas (the Sinai Peninsula of Egypt, Kenya, Mali, Burkina Faso, and Chad) may be treated as combat zones for certain IRC provisions, such as an extension to file under IRC §7508, and the exclusion for combat pay under IRC § 112. Except for an extension to file under IRC § 7508, Wisconsin does not recognize qualified hazardous duty areas as combat zones. Therefore, any income excluded IRC § 112, for service in a qualified hazardous duty area must be included in income.
- Mortgage interest deduction: For federal tax purposes, an itemized deduction is allowed for interest paid on up to $750,000 ($375,000 if married filing separately) of acquisition debt on a qualified residence(s) (IRC § 163(h)(3)(F)) and mortgage insurance premiums are treated as deductible mortgage interest. Wisconsin does not allow the deduction of mortgage insurance premiums.
- Charitable contribution limitations: the federal rules allow cash contributions by individuals to qualified organizations to be deducted to the extent they do not exceed 60% of the taxpayer’s contribution base. Gifts by individual taxpayers are only deductible to the extent they exceed 0.5% of the contribution base (IRC § 170(b)(1)(I) while gifts by corporations are deductible to the extent they exceed 1% of taxable income (IRC § 170(b)(2)(A)). Wisconsin law provides that the deduction for qualified gifts by individuals generally cannot exceed 50% of the contribution base; Wisconsin has not adopted the 0.5% (individuals) and 1% (corporations) deduction floors.
- Gambling losses: Gambling losses include any other allowable deductions that are incurred in carrying on the activity, and gambling losses are reduced to 90% of such losses and allowed only to the extent of gains (IRC § 165(d)). Wisconsin allowable deductions are not treated as gambling losses and such losses are not subject to the 90% limitation.
- ABLE accounts: For federal purposes, the computation of the annual limit for contributions to an ABLE account was changed to include an additional year of cost of living adjustments ($20,000 for 2026) and the special limit for contributions by a designated beneficiary is now permanent. For state tax purposes, an ABLE account may not receive more than $19,000 in total contributions for 2026 (the annual gift tax limit), regardless of contributor. An account that permits contributions in excess of that amount does not qualify as an ABLE account for Wisconsin tax purposes.
- Research and experimental expenses: The OBBBA amended IRC § 174 to address foreign research and experimental expenses and created IRC § 174A to cover domestic expenditures. Wisconsin follows IRC 174 as it existed prior to the 2017 Tax Cuts and Jobs Act for both foreign and domestic research and experimental expenses.
- Itemized deduction limitation: Under IRC § 68, individual taxpayers who are subject to the highest marginal tax rate must reduce their itemized deductions so they only receive the equivalent of a 35% marginal tax benefit from the deductions. Wisconsin follows IRC § 68, as existed prior to the 2017 Tax Cuts and Jobs Act. The limitation reduces certain itemized deductions by the lesser of 80% or 3% of income exceeding a specified threshold based on filing status.
- Information reporting thresholds: The information reporting threshold for certain payments to payees is increased to $2,000 under IRC § 6041(a) and § 6041A(a). For Wisconsin purposes, reporting is required if tax was withheld or if non-wage payments for services in the state exceeded $600.
Other conformity differences for 2026
For depreciation and amortization, Wisconsin continues to follow the IRC as of January 1, 2014, which means Wisconsin does not follow any of the bonus depreciation laws enacted by Congress after January 1, 2014, including those in the OBBBA and the 2017 Tax Cuts and Jobs Act, except that Wisconsin follows the federal law in effect for the taxable year for depletion and IRC §§ 179-179E. Wisconsin also conforms to a few specified provisions of the 2017 Tax Cuts and Jobs Act (sections 13201(f), 13203, 13204, and 13205), the CARES Act (section 2307), and the 2021 Consolidated Appropriations Act (section 202 of division EE).
Due to differences in the IRC in effect for federal and Wisconsin purposes, the taxable wages reported on 2026 Form W-2 (box 16) for Wisconsin may not be the same as the federal amount if the employee is receiving compensation for certain combat compensation of members of the armed forces, education assistance programs, employer contributions to Trump accounts, dependent care assistance programs (if they exceed the Wisconsin exemption amount), and certain fringe benefits.
Corporate income tax updates
The tax bulletin lists many items that the Department of Revenue has identified as commonly but mistakenly considered “sales” for purposes of calculating a taxpayer’s Wisconsin apportionment percentage, including proceeds and gain or loss from the redemption or sale of securities, such as hedging transactions, foreign exchange gain or loss, dividend income, and interest income. The Department has also identified the following as a common audit adjustment for interstate financial institutions, broker-dealers, investment advisors, investment companies and underwriters that calculate the Wisconsin apportionment percentage using a receipts factor: interest, dividends, gross receipts or net gains from sales of securities held for investment purposes or other income from investment assets held by the taxpayer in the taxpayer’s investment account are not included in the receipts factor.
Sales tax Updates
Effective July 1, 2026, L. 2026, A670 modified the sales and use tax exemption for qualified research to (1) expand the exemption to include persons engaged in contract research services, (2) define contract research services to mean research conducted by a person on behalf of a customer that, if performed by employees of the customer, would constitute qualified research, and (3) modify the definition of qualified research to include qualified research funded by customers for whom contract research services are provided.
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