Wisconsin's New $24,000 Retirement Income Subtraction: What Retirees Need to Know
Beginning with the 2025 tax year, Wisconsin added a new retirement-income subtraction that could reduce state taxable income for many older taxpayers.
If you are age 67 or older by the end of the tax year, you may be able to subtract up to $24,000 of qualifying retirement income from your Wisconsin taxable income. Married couples filing jointly may be eligible for up to $48,000if both spouses are at least 67.
For Wisconsin retirees, this creates a new planning opportunity — but there are a few important rules and tradeoffs to understand before automatically claiming it.
Who qualifies for Wisconsin's $24,000 retirement-income subtraction?
To qualify, you must be at least 67 years old before the end of the tax year.
Eligible taxpayers may subtract up to $24,000 of qualifying retirement income. If a married couple files jointly and both spouses are at least 67, the household may qualify for a subtraction of up to $48,000.
If only one spouse is age 67 or older, the couple does not receive the full $48,000 amount. In that situation, the subtraction is generally limited to up to $24,000 of qualifying retirement income attributable to the eligible spouse.
What retirement income qualifies?
Wisconsin says the subtraction can apply to payments or distributions from certain qualified retirement plans and individual retirement accounts, or IRAs.
That can include common retirement-income sources such as:
Traditional IRA distributions
Required minimum distributions, or RMDs
Certain qualified retirement-plan distributions
Income from inherited IRAs
Certain taxable amounts created by a traditional IRA-to-Roth IRA conversion
The Wisconsin Department of Revenue has specifically confirmed that qualifying RMDs, inherited IRA distributions, and Roth conversion income may be eligible when the taxpayer meets the age and other requirements.
However, not every payment reported on Form 1099-R automatically qualifies. Commercial annuities, life-insurance contracts, charitable gift annuities, and other payments may be treated differently.
Does Social Security count toward the $24,000 subtraction?
No — and that's because Wisconsin already provides favorable treatment for Social Security.
Wisconsin does not tax Social Security benefits. If Social Security income is taxable federally, Wisconsin provides a separate adjustment so that taxable Social Security is removed from Wisconsin income.
Because Social Security is already excluded, it does not need to use the new $24,000 retirement-income subtraction.
The same general principle applies to retirement income that is already exempt from Wisconsin tax: you cannot use the new subtraction to deduct income that Wisconsin already excludes.
What about RMDs?
This could be particularly useful for retirees taking required minimum distributions.
RMDs from traditional retirement accounts are generally taxable income, but Wisconsin has confirmed that qualifying RMD income may be eligible for the new retirement-income subtraction for taxpayers age 67 or older.
For example, imagine a 73-year-old Wisconsin taxpayer receives a $20,000 taxable RMD during the year.
If that distribution qualifies and the taxpayer meets the other requirements, the entire $20,000 could potentially fall within the $24,000 subtraction limit for Wisconsin purposes.
The income may still be taxable on the federal return. The Wisconsin subtraction only affects Wisconsin income tax.
What about Roth conversions?
This is where the new law becomes especially interesting from a planning standpoint.
A traditional IRA-to-Roth IRA conversion generally creates taxable income in the year of the conversion.
Wisconsin has specifically said that income from a Roth conversion may qualify for the new retirement-income subtraction when the taxpayer is at least age 67 by year-end.
That means an eligible Wisconsin retiree could potentially have conversion income that is taxable federally while receiving more favorable treatment on the Wisconsin return.
That does not automatically mean you should convert $24,000 each year. A Roth conversion can affect your federal tax bracket and other income-sensitive items, so it should be evaluated as part of a broader retirement tax plan.
What if only one spouse has retirement income?
There is another helpful clarification for married couples.
If both spouses are at least age 67 and file jointly, Wisconsin says the couple may potentially claim up to the full $48,000 subtraction even if all of the qualifying retirement income belongs to only one spouse.
For example, if one spouse receives $48,000 of qualifying retirement income and the other receives none, the couple may still potentially qualify for the full $48,000 subtraction, assuming the other requirements are satisfied.
The biggest catch: claiming the subtraction can affect Wisconsin tax credits
This is the part retirees should not overlook.
Wisconsin's new subtraction comes with an important tradeoff:
If you claim the new retirement-income subtraction, you generally cannot claim Wisconsin individual income-tax credits for that same tax year.
That means the new subtraction is not automatically the best option simply because you qualify for it.
For some taxpayers, reducing taxable retirement income by up to $24,000 may produce the better result.
For others, giving up a valuable Wisconsin tax credit could outweigh the benefit of the subtraction.
That comparison should be calculated before filing.
Wisconsin also notes that withholding and estimated tax payments are still allowed because those payments are not treated as credits for this rule.
Is there an income limit?
Unlike Wisconsin's older retirement-income subtraction, the new age-67 subtraction is not described by the Department of Revenue as having the same low-income eligibility test.
Wisconsin still has a separate subtraction of up to $5,000 for taxpayers age 65 or older who meet federal adjusted gross income limits — generally below $15,000 for an individual or $30,000 of combined federal adjusted gross income for certain married taxpayers.
The newer subtraction is a separate provision for taxpayers age 67 or older and can be worth as much as $24,000 per qualifying taxpayer.
Could this create new planning opportunities?
Potentially, yes.
The new subtraction makes it even more important for Wisconsin retirees to look at retirement-income decisions before the end of the year.
Some of the issues worth reviewing may include:
how much to withdraw from a traditional IRA,
whether to take additional retirement distributions,
the timing and size of a Roth conversion,
upcoming RMDs,
whether an inherited IRA distribution qualifies,
whether claiming the subtraction is more valuable than Wisconsin tax credits, and
how state planning interacts with your federal tax picture.
For some retirees, the goal may not simply be to minimize this year's Wisconsin tax bill. The better strategy may involve coordinating withdrawals and conversions across several years.
A simple example
Suppose a 68-year-old Wisconsin resident receives:
$30,000 of Social Security benefits, and
$24,000 from a traditional IRA.
Wisconsin does not tax the Social Security benefits.
If the $24,000 IRA distribution qualifies for the new retirement-income subtraction, the taxpayer may potentially subtract that amount from Wisconsin income as well.
The federal tax treatment may be very different, however. IRA withdrawals may still be taxable federally, and other income can affect federal taxation of Social Security.
That is why retirement tax planning should consider both federal and Wisconsin rules together, rather than looking at one tax return in isolation.
The bottom line
Wisconsin's new retirement-income subtraction could provide meaningful state tax savings for retirees age 67 and older.
Beginning with the 2025 tax year:
Eligible taxpayers may subtract up to $24,000 of qualifying retirement income.
Married couples filing jointly may qualify for up to $48,000 when both spouses are at least 67.
Qualifying income may include IRA withdrawals, RMDs, inherited IRA distributions, certain qualified-plan distributions, and even taxable Roth conversion income.
But the subtraction also comes with an important restriction on Wisconsin tax credits, which means it should be evaluated carefully rather than claimed automatically.
Schedule a consultation with Keystone Tax to review your retirement tax strategy.
*Last updated: September 2026
