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Wisconsin Retirement Tax Friendliness

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Overview of Wisconsin Retirement Tax Friendliness

Wisconsin does not tax Social Security retirement benefits, even those taxed at the federal level. Income from retirement accounts, including an IRA or a 401(k), is fully taxable at rates ranging from 4% to 7.65%. Income from a government pension is not taxed.

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You will pay of Wisconsin state taxes on your pre-tax income of
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Quick Guide to Retirement Income Taxes
is toward retirees.
Social security income is taxed.
Withdrawals from retirement accounts are taxed.
Wages are taxed at normal rates, your marginal state tax rate is %.
Public pension income is taxed, private pension income is taxed.
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    Jennifer Mansfield, CPA Tax

    Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice. SmartAsset’s tax expert has a degree in Accounting and Business/Management from the University of Wyoming, as well as both a Masters in Tax Laws and a Juris Doctorate from Georgetown University Law Center. Jennifer has mostly worked in public accounting firms, including Ernst & Young and Deloitte. She is passionate about helping provide people and businesses with valuable accounting and tax advice to allow them to prosper financially. Jennifer lives in Arizona and was recently named to the Greater Tucson Leadership Program.

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Wisconsin Retirement Taxes

Photo credit: ©iStock.com/omersukrugoksu

Wisconsin is the 20th most populous state in the U.S., with a total population of about 5.8 million residents. It is located in the Great Lakes region of the Upper Midwest, along the western shores of Lake Michigan and Lake Superior.

Wisconsin’s retirement taxes are generally fairly low as compared with other states, although this will vary depending on your personal financial situation. That’s because, as described in further detail below, the state fully exempts some types of retirement income while fully taxing others.

Likewise, Wisconsin’s sales and property taxes are a mixed bag. While sales tax are very low, the state’s property taxes rank among the highest in the U.S.

Is Wisconsin tax-friendly for retirees?

Wisconsin is moderately tax-friendly for retirees. Your level of retirement taxes in Wisconsin will largely depend on two things: how you earn income in retirement and whether you own a home. If you do not own a home and you rely primarily on Social Security or income from a government pension, your retirement taxes will be very low.

On the other hand, if you have significant income from a retirement account like a 401(k) and you do own a home, your retirement taxes could be quite high.

Is Social Security taxable in Wisconsin?

No. Wisconsin does not tax Social Security retirement benefits, even those taxed at the federal level.

Are other forms of retirement income taxable in Wisconsin?

Yes. Income from retirement accounts, including an IRA or a 401(k), is fully taxable at rates ranging from 4% to 7.65% (the full Wisconsin income tax brackets are below). If you have income from a private employer pension, that income will also be taxable. However, income from a government pension (for example the Wisconsin Retirement System) is not taxable.

Income Tax Brackets

Single Filers
Wisconsin Taxable IncomeRate
$0 - $11,2304.00%
$11,230 - $22,4705.84%
$22,470 - $247,3506.27%
$247,350+7.65%
Married, Filing Jointly
Wisconsin Taxable IncomeRate
$0 - $14,9804.00%
$14,980 - $29,9605.84%
$29,960 - $329,8106.27%
$329,810+7.65%
Married, Filing Separately
Wisconsin Taxable IncomeRate
$0 - $7,4904.00%
$7,490 - $14,9805.84%
$14,980 - $164,9006.27%
$164,900+7.65%
Head of Household
Wisconsin Taxable IncomeRate
$0 - $11,2304.00%
$11,230 - $22,4705.84%
$22,470 - $247,3506.27%
$247,350+7.65%

How high are property taxes in Wisconsin?

Wisconsin has some of the highest property taxes of any U.S. state. The average effective rate in Wisconsin is 1.94%. This is the fifth highest in the U.S. Most homeowners in Wisconsin pay at least $3,000 in annual property taxes and many pay more than that.

Despite those high property taxes, housing costs in Wisconsin are below average. The overall average cost of housing in Wisconsin is 10.8% lower than the national average.

What is the Wisconsin homestead credit?

In Wisconsin homeowners who use their property as a primary residence and who meet certain income requirements can claim a property tax credit on their income tax return. To be eligible, you must have household income no greater than $24,680 (as of 2014).

The amount of the credit varies depending on your total property taxes paid that year and your household income. The maximum credit amount is $1,168.

Photo credit: ©iStock.com/lightstalker

How high are sales taxes in Wisconsin?

Very low. In addition to the state rate of 5%, counties can levy sales taxes of up to 0.60%. The overall average sales tax rate in Wisconsin is 5.43%. This is the eighth lowest in the U.S. and third lowest among states that have a sales tax.

For seniors, it gets even better. Wisconsin provides full sales tax exemptions for groceries and prescription drugs. Medical care and food are generally two of the largest expenses for retirees.

What other Wisconsin taxes should I be concerned about?

Wisconsin treats capital gains as regular income. If you have made an investment in the stock market, real estate or some other asset, it’s important to keep in mind that appreciation made by that investment will be taxed at a rate as high as 7.65%. That tax is in addition to the federal capital gains tax of 15%.

On the other hand, while many other states have their own estate tax or an inheritance tax, Wisconsin does not.

Most Tax Friendly Places for Retirees

SmartAsset’s interactive map highlights the places in the country with tax policies that are most favorable to retirees. Zoom between states and the national map to see the most tax-friendly places in each area of the country.

Highest
Lowest
Rank City Income Tax Paid Property Tax Rate Sales Tax Paid Fuel Tax Paid Social Security Taxed?

Methodology Our study aims to find the areas with the most tax-friendly policies for retirees. To do that we looked at how the tax policies of each city would impact a retiree with a $50,000 income. Our hypothetical retiree is getting $15,000 from Social Security benefits, $10,000 from a private pension, $15,000 from retirement savings like a 401(k) or IRA and $10,000 in wages.

To calculate the expected income tax this person would pay in each location we applied deductions and exemptions. This included the standard deduction, personal exemption and deductions for each specific type of retirement income. We then calculated how much this person would pay in income tax at the federal, state, county and local levels.

We calculated the effective property tax rate by dividing median property tax paid by median home value for each city.

In order to determine sales tax burden we estimated that 35% of take-home (after-tax) pay is spent on taxable goods. We multiplied the average sales tax rate for a city by the household income less income tax. This product is then multiplied by 35% to estimate the sales tax paid.

For fuel taxes, we first distributed statewide vehicle miles traveled down to the city level using the number of vehicles in each county. We then calculated miles driven per capita in each city. Using the nationwide average fuel economy, we calculated the average gallons of gas used per capita in each city and multiplied that by the fuel tax.

For each city we determined whether or not Social Security income was taxable.

Finally, we created an overall index weighted to best capture the taxes that most affect retirees. We gave a 4x weighting to income tax, 3x weighting to property tax rate, a 2x weighting to sales tax and 1x weighting to fuel tax.

Sources: Internal Revenue Service, Social Security Administration, state websites, local government websites, US Census Bureau 2016 American Community Survey, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration