1. I am a resident of Wisconsin. Do I have to include the income I earned in another state on my Wisconsin tax return?
Yes. All income received by a Wisconsin resident is reportable to Wisconsin regardless of where it is earned. Wisconsin allows a credit for the net income tax you pay to other states on income that is taxed by both Wisconsin and the other state. In order for an individual, estate, or trust to claim this credit, you must:
- File an income tax return with the other state to determine the amount of net tax paid to that state
- File Wisconsin Form 1 (individual) or Form 2 (estate or trust)
- Attach a copy of the other state's income tax return
- Attach Wisconsin Schedule OS, Credit for Net Tax Paid to Another State
- Attach your Form W-2 (wage statement) or other withholding statement from the other state
Caution: A partner or shareholder may not claim a credit for net tax paid to another state for tax paid to the other state by a tax-option (S) corporation, partnership, or limited liability company that is electing to pay tax at the entity level in Wisconsin. However, a credit may be claimed if the tax-option (S) corporation, partnership, or limited liability company elected to pay tax at the entity level in another state but did not make the election to pay tax at the entity level in Wisconsin. For additional information, see page 2 of the Schedule OS instructions.
Effective for taxable years beginning on or after January 1, 2017, a new limitation applies to the credit. The credit cannot exceed the lesser of:
- Your Wisconsin net tax liability
- The amount of tax paid to the other state
- The amount of Wisconsin tax paid on the income subject to tax in the other state
Note: The third limitation does not apply to income that is taxed by Minnesota, Illinois, Iowa, or Michigan.
See the Schedule OS or Wisconsin Publication 125, Credit for Tax Paid to Another State, for further details. For additional information on the election to pay tax at the entity level for tax-option (S) corporations, see the Pass-Through Entity-Level Tax: Tax-Option (S) Corporation Determining Income and Computing Tax Common Questions. For additional information on the election to pay tax at the entity level for partnerships, see Pass-Through Entity-Level Tax: Partnership Determining Income and Computing Tax.
2. What is reciprocity, and which states have reciprocity with Wisconsin?
Wisconsin currently has reciprocity agreements with four states: Illinois, Indiana, Kentucky, and Michigan. These agreements provide that residents of these states working in Wisconsin will be taxed on income earned as an employee by their home state and not by Wisconsin. Conversely, Wisconsin will tax Wisconsin residents working in one of these states and the other state will not tax the income earned as an employee by Wisconsin residents who are employed in that state. Reciprocity applies only to income earned as an employee. Income earned as an employee generally includes salaries, wages, commissions, and fees. Reciprocity does not apply to other types of income, such as gains on the sale of property, rental income, and lottery winnings. For more information on Wisconsin's reciprocity agreements, see Publication 121, Reciprocity.