Two New Tax Breaks for Wisconsin Employers and Residents
In an effort to provide relief to taxpayers and encourage businesses to hire, the Wisconsin state legislature has acted to reduce the tax burden on employers and individuals. The new provisions apply in tax years beginning on or after January 1, 2011.
Income tax deduction for businesses that hire
Businesses that hire new full-time equivalent (FTE) employees can now take generous tax deductions while meeting their staffing needs. Companies with gross receipts less than $4 million can take a $4,000 deduction per added FTE employee; those with gross receipts greater than $4 million can deduct $2,000 per added FTE employee. These deductions translate into $300 and $150 in tax savings per qualifying employee, respectively.
The increase in the number of FTE employees will be determined by subtracting the previous tax year’s average employee count (AEC)—as determined from quarterly unemployment insurance reports—from the current tax year’s AEC. The Wisconsin Department of Revenue is expected to issue further guidance on this applying this provision.
Removal of tax on earnings in health savings accounts for individuals
Up till now, Wisconsin residents have been taxed on contributions, interest, and earnings related to their
health savings accounts (HSAs). Individuals previously paid as much as $550 in additional state income tax for amounts accrued from these benefits—as well as dealt with more complicated returns. The Wisconsin legislature will no longer count those earnings as income, and residents who eschewed HSA benefits because of their tax implications can now take advantage of them. Unlike a flex or medical savings account, there is no “use it or lose it” caveat for an HSA; amounts can be rolled into new benefit years. The earnings can accumulate tax-free for both federal and state tax purposes, and amounts distributed from the HSA are not taxable if used to pay qualified medical expenses.
“Both the federal and state governments have made multiple changes to their taxing structures over the last couple years to encourage economic recovery,” says Pat Sturz, a tax principal with LarsonAllen. “Wisconsin is now following suit.”
Sturz advises employers and individuals to understand the new provisions and plan for them accordingly. “Business owners need to be aware of these changes so they can both minimize their taxes and properly report benefits to their employees. And individual taxpayers can take a second look at their HSA benefits and make them work most advantageously for them.”
How we can help
Contact your CPA to help strategically apply the new provisions. We can also assist employers with setting up a qualifying HSA.
Pat Sturz, Principal
psturz@larsonallen.com or 715-852-1120
View our Wisconsin principals.