On April 15, 2020, Wisconsin Governor Tony Evers signed Assembly Bill 1038, a COVID-19 relief package that includes various state tax changes. The law passed overwhelmingly in the Wisconsin House and unanimously in the Senate. While focusing primarily on health issues, the new law contains numerous tax law changes that effect individual and business taxpayers in the state.
Federal conformity to the CARES Act
Wisconsin is a static conformity state that has adopted the Internal Revenue Code as of Dec. 31, 2017. Assembly Bill 1038 selectively conforms to the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) and other federal relief measures. Specifically, the state conforms to the following highlighted provisions:
- Conforming to the federal gross income tax exclusion of loans forgiven under the Paycheck Protection Program
- Provides an exclusion from income for certain student loan principal and interest payments made by an employer on behalf of an employee
- Adoption of the CARES Act 15-year recovery period for qualified improvement property
- Conformity to single-employer plan retirement funding rules
- Conformity to the federal tax treatment of certain coronavirus-related retirement plan distributions
- Provides that non-itemizing individuals an ‘above-the-line’ charitable contribution deduction not to exceed $300 in computing their 2020 adjusted gross income and provides for charitable giving incentives to individuals who itemize and corporations by increasing charitable deduction limitations for qualified contributions made in 2020
- Clarifies that an individual's health insurance plan is still treated as a high deductible plan even if it fails to provide a deductible for telehealth and other remote care services
In addition to these conformity provisions, the new law allows the Wisconsin Department of Revenue to waive interest and penalties on a case-by-case basis that accrue during the period covered by the COVID-19 public health emergency if the due date falls within that period and the department determines that the person's failure is due to the effects of the pandemic. For purposes of the waiver authority, the public health emergency began in Wisconsin on March 12, 2020. Qualifying taxes include those deposited or expected to be deposited into the general fund or a tax or fee that is deposited or expected to be deposited into the transportation fund.
The state also made changes to the property tax. The state will allow municipalities to waive interest and penalties for late property tax installment payments due after April 1, 2020 upon a finding of hardship, if the total amount due is received on or before Oct. 1, 2020.
Business and individual taxpayers should be aware of these changes to the Wisconsin tax laws providing a number of state benefits to taxpayers under the CARES Act. The new law affects companies and sole proprietors receiving Paycheck Protection Program loan and taxpayers owning qualified improvement property. Noteworthy, the CARES Act modifications to section 163(j) were not addressed in the legislation.
As a static conformity state, Wisconsin is one of the first states to specifically address conformity with the CARES Act. Recently New York, a rolling conformity state, chose an alternative approach by decoupling from much of the federal Act. It is anticipated that other states take similar approaches to Wisconsin and New York in the coming weeks.
Other state considerations for the COVID-19 pandemic can be found in RSM’s State tax planning in response to economic distress. For more information on the coronavirus, please see RSM’s Coronavirus Resource Center which includes related and frequently updated developments and a link to sign up for RSM’s weekly Coronavirus webcast series.