On Feb. 18, Governor Tony Evers signed 2021 Wisconsin Acts 1 and 2, which provide significant changes for 2020 Wisconsin income/franchise tax returns. The Wisconsin Department of Revenue (DOR) is updating the tax form instructions and will publish more information next week in Wisconsin Tax Bulletin 212.
The DOR provided the following guidance regarding the earned income tax credit, federal Paycheck Protection Programs (PPP), state grant programs and more.
Earned Income Tax Credit
Wisconsin adopted section 211 of Division EE of Public Law 116-260, allowing taxpayers to elect to use their 2019 earned income to compute their 2020 federal and Wisconsin earned income tax credits. The department will review credit claims already filed and make adjustments that benefit the taxpayer before issuing the refund. Please advise your clients that it may take longer to receive their refund as we review and adjust these returns.
Federal Paycheck Protection Programs
Wisconsin adopted sections 276(a) and (b) and 278(a) of Division N of Public Law 116-260, regarding the tax treatment of income and expenses relating to the original and subsequent Paycheck Protection Programs (PPP). Taxpayers may exclude from income the forgiveness of debt on PPP loan proceeds and deduct expenses paid with PPP loan proceeds that are otherwise deductible. Taxpayers should amend their Wisconsin returns if they have already filed and had an additional modification for the previously disallowed expenses.
Other Federal Grants, Loans and Subsidies
Wisconsin adopted section 278(b), (c), and (d) of Division N of Public Law 116-260, regarding the tax treatment of income and expenses relating to certain federal grants, loans, and subsidies. Taxpayers may exclude from income the following federal grants, forgivable loans, and subsidies, and deduct expenses paid with the funds if the expenses are otherwise deductible. Taxpayers should amend their Wisconsin returns if they have already filed and included these amounts in income.
- Section 278(b) - Emergency grants of economic injury disaster loans (EIDL) and targeted EIDL advances
- Section 278(c) - Subsidy for certain loan payments
- Section 278(d) - Grants for shuttered venue operators
State Grant Programs during the COVID-19 Pandemic
The following income is exempt from Wisconsin income and franchise tax:
Income received from the state of Wisconsin with money received from the coronavirus relief fund authorized under 42 USC 801 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 grants program
- Music and performance venue grants
- A cultural organization grant program
- Lodging industry grants
- Low-income home energy assistance
- A rental assistance program
- Supplemental child care grants
- A food insecurity initiative
- Ethanol industry assistance
Income received in the form of a grant issued by the Wisconsin Economic Development Corporation during and related to the COVID-19 pandemic under the ethnic minority emergency grant program.
Income from these programs is included in federal income pursuant to sec. 61 of the Internal Revenue Code, unless an exception applies. For Wisconsin, this income should be excluded from federal adjusted gross income by making a subtraction modification on the appropriate line of the tax return. Expenses paid for with these programs and deducted in the computation of federal adjusted gross income are not required to be added back on the Wisconsin return. Taxpayers should amend their Wisconsin returns if they have already filed and included these amounts in income.
Subtract the income as follows and use "Wisconsin COVID-19 Program Funds" as the description:
- Form 1, Schedule SB, Line 46, Other Subtractions
- Form 1NPR, Schedule M, Line 29, Amounts not taxable by Wisconsin
- Form 2, Nondistributable portion, Schedule 2M, Part II, Line 27, Amounts not taxable by Wisconsin
- Form 2, Distributable portion, Form 2, Page 3, Schedule A, Line 5, Column 1
- Form 3, Schedule 3K, Part II, Column (c), and Part III, Line 15, Other Subtractions
- Form 4, Schedule 4W, Line 13
- Form 4T, Part 2, Line 7
- Form 5S, Schedule 5K, Column (c), and Page 6, Line 20, Other Subtractions
- Form 6, Part II, Line 4m, and enter Code 12
Tax-Option (S) Corporations That Elect To Pay Tax At The Entity Level:
Tax-option (S) corporations that make the entity-level tax election under sec. 71.365(4m)(a), Wis. Stats., are entitled to or subject to the following:
- The Wisconsin 30-percent or 60-percent long-term capital gain exclusion under sec. 71.05(6)(b)9. or 9m., Wis. Stats.
- A capital loss deduction limitation of $500.
- An exemption from underpayment interest if the tax-option (S) corporation 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.
Updates to the instructions for line 4 of Form U and lines 7 -9 of the Schedule 5S-ET will be posted on the department's website Feb. 19.