How Does Wisconsin Tax Retirement Income?
How Does Wisconsin Tax Retirement Income?
Wisconsin retirees often assume all retirement income is taxed the same way.
It isn't.
Some types of retirement income are completely excluded from Wisconsin income tax, while other retirement distributions are generally taxable unless a specific subtraction or exemption applies.
Understanding those differences can make retirement tax planning especially valuable.
Social Security
Wisconsin does not tax Social Security benefits.
This is true even when a portion of those benefits is taxable on your federal return.
Pensions and Annuities
For a full-year Wisconsin resident, pension and annuity income that is taxable federally is generally also taxable by Wisconsin, unless a specific Wisconsin exemption applies.
There are special exemptions for certain retirement systems and circumstances, so the exact treatment depends on the type of retirement benefit and the taxpayer's history.
Traditional IRA Withdrawals
Distributions from traditional IRAs are generally taxable federally to the extent they represent pre-tax contributions and earnings.
Wisconsin generally starts with federal income and then applies Wisconsin-specific adjustments and subtractions.
For many Wisconsin retirees, that means traditional IRA distributions are also part of Wisconsin taxable income unless a specific subtraction applies.
Required Minimum Distributions
RMDs from traditional IRAs and many employer retirement plans are generally included in federal taxable income, except for amounts representing previously taxed basis or another tax-free component.
Those distributions can therefore also affect Wisconsin taxes.
However, Wisconsin's new retirement-income subtraction creates an important planning opportunity for some older taxpayers.
Wisconsin's New Retirement-Income Subtraction
Beginning with tax year 2025, Wisconsin residents who are at least 67 years old at the end of the tax year may subtract up to $24,000 of qualifying retirement income.
A married couple filing jointly may subtract up to $48,000 if both spouses are at least 67.
Qualifying income can include distributions from:
qualified retirement plans, and
individual retirement accounts.
The Wisconsin Department of Revenue has specifically confirmed that qualifying RMD income, inherited IRA income, and even income from certain traditional-to-Roth conversions may qualify for this subtraction when the age and other requirements are met.
There is also no overall income phaseout for this particular $24,000 subtraction.
There's an Important Tradeoff
This part deserves attention.
A taxpayer who claims Wisconsin's new age-67 retirement-income subtraction generally cannot claim Wisconsin tax credits for that same tax year.
That means the maximum subtraction is not automatically the best choice for every taxpayer.
The value of the subtraction should be compared against any Wisconsin tax credits the taxpayer would otherwise qualify to claim.
Wisconsin Also Has an Older $5,000 Retirement Subtraction
Wisconsin also continues to provide a separate retirement-income subtraction of up to $5,000 for certain individuals age 65 or older who meet relatively low federal adjusted gross income limits.
For that subtraction, federal AGI generally must be below $15,000 for an individual or $30,000 for certain married taxpayers.
Retirement Taxes Are About More Than One Year's Return
Good retirement tax planning looks at how several pieces interact:
Social Security,
pensions,
IRA withdrawals,
RMDs,
Roth conversions,
capital gains,
tax credits, and
Wisconsin-specific retirement subtractions.
Sometimes the goal is not simply paying the lowest possible tax this year. It may be about managing taxable income over many years.
*Tax laws and individual circumstances vary and may change over time. This article is for general educational purposes and is not intended as individualized tax, legal, or investment advice. Consult a qualified tax professional regarding your specific situation.
*Last updated: September 2026
