Representative Kooyenga (R-Brookfield) and Senator Marklein (R-Spring Green) released a small tax reform package aligning certain aspects of Wisconsin’s tax code to the internal revenue code (IRC) in response to the passage of the federal Tax Cuts and Jobs Act of 2017. The changes made under this legislation are minor due to fiscal constraints as the legislative session winds down. These changes include:
- IRA: Prevents the use of recharacterization, which allows you to treat a regular contribution made to a traditional IRA or to a Roth IRA as having been made to the other type of IRA, to undo a conversion of a traditional IRA to a Roth IRA.
- Retirement Plan Loan Offsets: Some retirement plans, such as a 401k, may allow participants to take out a loan from their savings in the plan. Generally these loans must be paid back within a set amount of time or will be “offset” and considered a distribution, treated as an early withdrawal, and subject to certain tax penalties. If an employee, who has taken out a loan, is terminated the loan may be immediately considered “offset.” A way to avoid tax penalties in a case like this is to replace the offset amount when rolling over an old account to a new one. The federal reform extends the roll over period for offset loans from sixty days to the due date for filing taxes in the year the loan was offset. This bill copies that change.
- Deductibility of travel expenses by members of Congress: The federal reform prohibits a member of Congress from deducting living expenses paid or incurred while away from home for income tax purposes. This bill copies that provision.
- Student Loan Indebtedness: The exclusion of the discharge of student loans from taxable income is extended to include the student’s death or permanent total disability to mirror the federal law.
- 529 College Savings Accounts: Current state law allows for 529 distributions for qualified higher education expenses as defined by federal law. The federal tax reform bill broadened allowable distributions to include tuition expenses for elementary or secondary, public, private, or religious schools. This bill would update Wisconsin’s tax code to track this broadening.
- Depletion: Wisconsin had previously federalized its language surrounding depletion. However there have been disputes between businesses and the Department of Revenue regarding the legislative intent of the previous federalization. This bill clarifies that the legislature intended to federalize Wisconsin’s treatment of depletion.
- Sales and Use Tax Exemption for Property, Items, and Services Purchased by Certain Entities: Entities under IRC 501(c)(2) that are exempt from paying federal income tax are also exempt from sales and use tax for certain purchases if they are organized for the exclusive purpose of holding title to property, collecting income from that property, and turnover the entire income, minus expenses, to an entity also exempt from state sales and use tax because of its status as a charitable organization.