For federal income tax purposes, Public Law 111-5, enacted February 17, 2009, provided that for 2009, the first $2,400 of unemployment compensation is excluded from income. This provision of federal law was not adopted for Wisconsin.
For Wisconsin income tax purposes, the amount of taxable unemployment compensation is the lesser of (1) the total unemployment compensation received in 2009, or (2) one-half of the amount by which federal adjusted gross income less certain adjustments exceeds $18,000 ($12,000 if single or married and did not live with your spouse at any time during the year, or -0- if married and lived with your spouse at any time during the year).
A worksheet for determining the amount of unemployment compensation taxable to Wisconsin is provided in the instructions for the income tax forms. When determining taxable unemployment compensation, the taxpayer must enter his or her federal adjusted gross income on the worksheet.
Because of the definition of the Internal Revenue Code provided under Wisconsin law, the amount to enter on the worksheet as federal adjusted gross income cannot be taken directly from the taxpayer's federal income tax return. For example, the Wisconsin definition of the Internal Revenue Code does not include the exclusion for the first $2,400 of unemployment compensation, the deduction for educator expenses, or the deduction for tuition and fees.
Taxpayer's who file Wisconsin Form 1 or Form 1NPR are required to complete Wisconsin Schedule I, Adjustments to Convert 2009 Federal Adjusted Gross Income and Itemized Deductions to the Amounts Allowable for Wisconsin. This schedule will recompute federal adjusted gross income to account for the differences between federal and Wisconsin law. This recomputed federal adjusted gross income is the amount to enter on the worksheet as federal adjusted gross income.
Taxpayers who file Wisconsin Form 1A do not have to complete Schedule I. However, when completing the unemployment compensation worksheet, they still must recompute federal adjusted gross income to account for the differences in federal and Wisconsin law. Therefore, the amount to enter on the worksheet is the federal adjusted gross income as shown on the federal return plus the amount of unemployment compensation excluded from federal income, the amount of any federal educator expense deduction, and the amount of any federal tuition and fees deduction.
September 9, 2009