Married, Less than $14,570 $12,970
Joint $14,570 to $80,150 $12,970– 19.778%(WAGI-$14,570)
Greater than $80,150 $0
Married, Less than $6,920 $6,160
Separate $6,920 to $38,070 $6,160 – 19.778%(WAGI-$6,920)
Greater than $38,070 $0
Head-of- Less than $10,380 $9,300
Household $10,380 to $30,350 $9,300 – 22.515%(WAGI-$10,380)
Greater than $30,350 Single Standard Deduction
C. Personal Exemptions. Provide personal exemptions to be subtracted from Wisconsin AGI in calculating Wisconsin taxable income, which is the amount of income subject to tax, beginning with tax year 2000. Under the Governor’s proposal for the 2000 tax year, a $600 personal exemption would be provided for each taxpayer, the taxpayer’s spouse and for each individual claimed as an exemption under the Internal Revenue Code (IRC). The personal exemption amount would be increased to $700 for tax year 2001 and thereafter.
Provide an additional $200 exemption in tax year 2000 for each taxpayer who has reached age 65 before the end of the tax year (two exemptions would be provided if both the taxpayer and their spouse are 65 at the end of the year). The additional exemption would be increased to $250 for tax years 2001 and thereafter. Thus, for each taxpayer over the age of 65 the total exemption would be $800 in 2000 and $950 in 2001 and thereafter.
Prorate the personal exemptions for nonresident and part-year resident taxpayers based on the ratio of Wisconsin AGI to federal AGI.
D. Rates and Brackets. Create a fourth income tax bracket and reduce the tax rates in tax years 2000 and 2001. The rate and bracket schedules under current law for tax years 1999 and 2000 and under the Governor's proposal for 2000 and 2001 are shown below. The current law bracket amounts for 2000 reflect two years of indexing over the 1998 brackets; these amounts will continue to be adjusted for changes in inflation in tax year 2001 and thereafter. Under the Governor's proposal, the tax brackets would be indexed for changes in inflation in tax years 2002 and thereafter.
Current Law Rates and Brackets
Tax Year 1999
Taxable Income Brackets Marginal
Single Married-Joint Married-Separate Tax Rates
Less than $7,620 Less than $10,160 Less than $5,080 4.77%
7,620 to 15,240 10,160 to 20,320 5,080 to 10,160 6.37
15,240 and Over 20,320 and Over 10,160 and Over 6.77
Estimated Current Law Rates and Brackets
Tax Year 2000
Taxable Income Brackets Marginal
Single Married-Joint Married-Separate Tax Rates
Less than $7,790 Less than $10,380 Less than $5,190 4.77%
7,790 to 15,580 10,380 to 20,770 5,190 to 10,380 6.37
15,580 and Over 20,770 and Over 10,380 and Over 6.77
Governor's Proposed Rates and Brackets
Tax Years 2000 and 2001
Taxable Income Brackets Marginal Tax Rates
2001 and
Single Married-Joint Married-Separate 2000 Thereafter
Less than $7,500 Less than $10,000 Less than $5,000 4.73% 4.60%
7,500 to 15,000 10,000 to 20,000 5,000 to 10,000 6.33 6.15
15,000 to 112,500 20,000 to 150,000 10,000 to 75,000 6.55 6.50
112,500 and Over 150,000 and Over 75,000 and Over 6.75 6.75
E. Indexing. The Governor would maintain current law and index the standard deduction and tax brackets for changes in inflation in tax year 1999. The standard deduction would not be indexed in 2000 because it would be increased statutorily under the bill; the proposed standard deduction formulas would be indexed in 2001 and thereafter. The tax brackets would not be indexed for changes in inflation in tax years 2000 and 2001, which are the years the fourth tax bracket and lower tax rates would be implemented. Bracket indexing would resume in 2002.
The first three tax brackets are the same under the Governor's recommendation as under current law for tax year 1998, prior to any indexing adjustment. Since indexing would take place in 1999, the first three brackets for 2000 and 2001 under the bill would be lower than the 1999 tax brackets. For example, the first tax bracket for married-joint taxpayers was $10,000 in 1998. This amount is indexed to $10,160 in 1999 under current law and under the Governor's proposal. However, under the bill, the first married-joint tax bracket would be statutorily set at $10,000 in 2000 and in 2001 before indexing would resume in 2002. It should be noted that over the same time period, the lowest tax rate would be reduced from 4.77% in 1999 to 4.73% in 2000 and 4.60% in 2001.
F. Withholding Table Adjustments. The bill would modify current law provisions related to the Department of Revenue's adjustment of the withholding tables. Generally, under current law, DOR is directed to periodically adjust the withholding tables to reflect any statutory changes in the income tax rates, any applicable surtax, changes in the tax bracket amounts or the working families credit. An exception under current law prohibits DOR from adjusting the withholding tables to reflect the rate reduction that took effect in 1998 or any indexing adjustments before January 1, 2000. As a result, the withholding tables for the 1999 tax year do not reflect the tax rate reduction that took effect in 1998 or the first year of indexing. The withholding tables would be adjusted as follows based on current law provisions and the Governor's recommendation:
As under current law, on January 1, 2000, the Department would be allowed, but not required, to adjust the tables to reflect the current law tax rate reduction that took effect with the 1998 tax year.
On July 1, 2000, the Department would be required to adjust the tables to reflect the proposed tax rates for tax year 2001. The administration indicates that the tables would be adjusted to reflect the proposed 2001 rate cut prior to its statutory effective date so that the cost of the reduction would not be pushed out of the 1999-01 biennium and so that the tax cuts would be available to taxpayers earlier. The Department is also directed to adjust the tables to reflect bracket indexing. However, as noted in the section on indexing, the tax brackets would not be indexed in 2000 and 2001 because the amounts would be set statutorily.
The Department indicates that it would likely not adjust the tables on January 1, 2000, since the tables would be adjusted again six months later under the Governor's proposal.
G. Itemized Deduction Credit. Eliminate miscellaneous itemized deductions as eligible expenses under the state’s itemized deduction credit. This modification would first apply to tax years beginning on January 1, 2000. Miscellaneous itemized deductions allowed under federal law include unreimbursed employe expenses, tax preparation fees, safe deposit box rent, gambling losses (to the extent of gambling winnings), casualty and theft losses from income-producing property and other amounts paid to produce or collect taxable income and manage or protect property held for earning income. Under the IRC, certain miscellaneous itemized deductions can only be deducted to the extent that they exceed 2% of the taxpayer's AGI.
Under current law, the itemized deduction credit is equal to 5% of the excess of allowable itemized deductions over the sliding scale standard deduction. State itemized deductions generally conform to the expenses permitted as federal itemized deductions and currently include charitable contributions; medical expenses exceeding 7.5% of AGI; interest expenses for a principal residence or a second home in Wisconsin; interest expenses for property sold on a land contract; other interest expenses, except personal interest; and miscellaneous itemized deductions.
H. Married Couple Credit. Increase the maximum credit to $440 in 2000 and to $480 in 2001 and thereafter. Under current law, two-earner married couples are eligible for a credit equal to 2.75% of the secondary earner’s earned income in 2000 (up to a maximum of $385) and 3.0% in 2001 and thereafter (up to a maximum of $420). These percentages would not be modified.
I. Eliminate Certain Tax Credits. Eliminate the property tax/rent credit (PTRC), dependent credit, senior citizen credit and working families credit for tax years 2000 and thereafter. Under current law, the PTRC is equal to 10% of property taxes, or rent constituting property taxes, to a maximum credit of $200 (the credit was increased to 14% of property taxes to a maximum credit of $350 on a one-time basis in 1998). Current law also provides for a $50 dependent credit and a $25 senior citizen credit for persons age 65 and over who fall under certain income limitations. The working families credit is equal to the net tax liability for taxpayers with Wisconsin AGI below $9,000 ($18,000 if married-joint); the credit phases out
over the next $1,000 of income until eliminated when AGI exceeds $10,000 ($19,000 if married-joint).
[Bill Sections: 1674, 1685, 1689 thru 1707, 1711, 1713 thru 1717, 1721, 1722, 1784 thru 1787 and 9343(20)]
2. HOMESTEAD TAX CREDIT: EXPANSION
GPR $11,700,000
Governor: Increase funding by $5,600,000 in 1999-00 and $6,100,000 in 2000-01 to fund the Governor's proposed expansion of the homestead tax credit. Under the bill, the maximum income amount under the credit would increase from $19,154 to $20,290, beginning with claims filed in 2000 and thereafter based on property taxes or rent constituting property taxes accrued during the previous year (tax year 1999). In addition, the bill would reduce the percentage used in phasing out the credit for higher-income claimants from 13% to 11.8%. The homestead credit formulas under current law and under the Governor’s proposal are shown below. Under current law and the Governor's proposal, property taxes claimed for the credit may not exceed $1,450 and the maximum credit is $1,160.
Current Law Credit = 80% (Property Taxes – 13.0% (Household Income - $8,000))
Proposed Credit = 80% (Property Taxes – 11.8% (Household Income - $8,000))
[Bill Sections: 1762 and 1763]
3. HOMESTEAD TAX CREDIT: CURRENT LAW REESTIMATE
GPR - $8,000,000
Governor: Decrease funding by $3,000,000 in 1999-00 and $5,000,000 in 2000-01 to reflect estimated expenditures for the homestead tax credit under current law. With this modification and the proposed expansion of the credit, the bill would provide total funding of $84,600,000 in 1999-00 and $83,100,000 in 2000-01.
4. EARNED INCOME TAX CREDIT: CURRENT LAW REESTIMATE
GPR $1,000,000
Governor: Decrease funding by $2,500,000 in 1999-00 and increase funding by $3,500,000 in 2000-01 for estimated costs of the earned income tax credit (EITC). Total funding would be $74,000,000 in 1999-00 and $80,000,000 in 2000-01. This funding level includes $2,000,000 each year to reflect a November, 1998, Internal Revenue Service ruling that gains realized on the sale of property used in a trade or business are not counted as investment income for purposes of the EITC. This ruling restores eligibility to individuals (particularly farmers) who were not previously able to claim the credit due to the limitation on disqualified income.
5. LIMIT EDUCATIONAL EXPENSES ALLOWED UNDER THE ITEMIZED DEDUCTION CREDIT
Governor: Specify that any amount claimed under the deduction for higher education tuition expenses would not be allowed for purposes of the itemized deduction credit. Specify that this provision would first apply to taxable years beginning on January 1 of the year in which the bill takes effect, except that if the bill takes effect after July 31, the provision would first apply to taxable years beginning on January 1 of the following year.
Under current law, a deduction from income is allowed for higher education tuition expenses for each taxpayer or dependent of a taxpayer, up to $3,000 per student each tax year. The student must be attending an institution of higher education located in Wisconsin or that is subject to the Minnesota-Wisconsin tuition reciprocity agreement. The maximum deduction is available to taxpayers with income below $50,000 if single, $80,000 if married-joint and $40,000 if married-separate. The amount of the deduction phases-out as income increases above these amounts until eliminated when income exceeds $60,000 if single, $100,000 if married-joint and $50,000 if married-separate. In addition, education expenses may be deducted as an itemized deduction for federal tax purposes, and also under the state's itemized deduction credit, if the education is undertaken to maintain or improve a skill required for employment, trade or business. Currently, an individual can deduct the same expenses under both provisions and receive a double benefit.
[Bill Sections: 1712 and 9343(4)]
6. CLARIFY THE LIMITS AND PRORATION OF THE HIGHER EDUCATION TUITION EXPENSE DEDUCTION
Governor: Specify that the proration of the higher education tuition expense deduction for nonresident and part-year resident taxpayers would apply to the full deduction, as it currently applies to the phase-out of the deduction for higher-income taxpayers.
