If I report income adjustments on Wisconsin Schedule
I, does that affect my federal earned income credit for Wisconsin purposes?
The answer is that it might. While Wisconsin's earned income credit is a percentage of the federal earned income credit, the federal amount used is based on the Internal Revenue Code (IRC) adopted by Wisconsin. This includes the computation of earned income and federal adjusted gross income (AGI) used to determine your federal earned income credit for Wisconsin purposes. If an income adjustment on Schedule
I affects your earned income and/or federal AGI, you need to recompute the allowable federal earned income credit based on the amounts under Wisconsin law. This may or may not result in a different federal credit for Wisconsin purposes.
Example 1: Taxpayer A computed their federal earned income credit on federal Form 1040 based on earned income and a federal AGI of $30,000. Taxpayer A reports a $10,000 adjustment to federal AGI (no earned income impact) on Schedule
I for income included in Wisconsin's definition of the IRC. This income increases Taxpayer A's federal AGI to $40,000 with no change to earned income. Taxpayer A must recompute their federal earned income credit for Wisconsin purposes based on the revised federal AGI of $40,000. The revised credit amount is used in computing the Wisconsin earned income credit on Form 1 (line 29 since 2022) or Form 1NPR (line 60 since 2022), as appropriate.
Example 2: Taxpayer B reports $35,000 of earned income and a federal AGI of $20,000 on their federal Form 1040. Their federal earned income credit on Form 1040 is based on the $35,000 of earned income. Taxpayer B reports a $7,500 adjustment to federal AGI (no earned income impact) on Schedule
I for income included in Wisconsin's definition of the IRC. This income increases Taxpayer B's federal AGI to $27,500 with no change to earned income. While Taxpayer B should double check their federal earned income credit for Wisconsin purposes, no change will occur in this instance because the credit for both federal and Wisconsin purposes is based on the $35,000 of earned income.