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New Wisconsin Tax Laws Affect 2020 Wisconsin Tax Returns

On February 18, 2021, Governor Evers signed two bills, which provide additional tax relief by adopting federal tax law changes to improve Wisconsin tax laws. We’ve outlined the significant changes for 2020 Wisconsin Income Tax returns that business owners should be aware of.

Earned Income Tax Credit

This newly adopted state tax law allows taxpayers to elect to use their 2019 earned income to compute their 2020 federal and Wisconsin earned income tax credits. Please note that due to this change, it may take longer to receive your refund as the Department of Revenue will review credit claims already filed and make adjustments that benefit the taxpayer before issuing the refund.

PPP:

Wisconsin adopted the federal tax law regarding the tax treatment of income and expenses relating to the Paycheck Protection Programs (PPP). Taxpayers may now exclude any forgiven portion of their PPP loan proceeds from their income and deduct expenses paid with PPP funds which are otherwise deductible.

Other Federal Grants, Loans, and Subsidies

Taxpayers may now exclude from income the following federal grants, loans, and subsidies, as well as deduct expenses paid with these funds if the expenses are otherwise deductible.

  • EIDL and EIDL advances
  • Subsidy for certain loan payments
  • Grants for shuttered venue operators
State Grant Programs

The following income is considered exempt from Wisconsin income and franchise tax:

  • Income received from the state of Wisconsin to be used for any of the following purposes:
    • Grants to small businesses
    • A farm support program
    • Broadband expansion
    • Privately owned movie theater grants
    • A nonprofit grant program
    • A tourism grant program
    • A cultural organization grant program
    • Music and performance venue grants
    • Lodging industry grants
    • Low-income home energy assistance
    • A rental assistance program
    • Supplemental child care grants
    • A food insecurity initiative
    • Ethanol industry assistance
    • Wisconsin Eye
  • Income received a WEDC grant related to the COVID-19 pandemic under the ethnic minority emergency grant program.

For Wisconsin, this income should be excluded from your federal adjusted gross income (AGI), and expenses paid with funds and deducted in the computation of federal AGI are not required to be added back to your Wisconsin tax return.

(S) Corps That Elect to Pay Tax At the Entity Level

(S) Corporations that make the entity-level tax election, are now entitled to the following:

  •  The Wisconsin 30% or 60% long-term capital gain exclusion.
  • A capital loss deduction limitation of $500.

An exemption from underpayment interest if the (S) corp had zero income or franchise tax liability in the prior year, regardless of the amount of its Wisconsin net income in the current taxable year.

Important! If you have already filed, we recommend you amend your tax return. For assistance with amending your return, contact us here.