Wisconsin retirement taxes are lighter than the state’s reputation suggests. Social Security benefits are fully exempt from state income tax. Military retirement pay is fully exempt. Starting with tax year 2025, residents aged 67 and older can subtract up to $24,000 of IRA and pension income from their Wisconsin taxable income. There is no state estate tax and no inheritance tax. Other retirement withdrawals are taxed at the state’s regular income tax rates, and property taxes remain above the national average, though targeted credits soften that for older homeowners and renters.
Social Security Is Not Taxed
Wisconsin does not tax Social Security benefits. That covers standard retirement payments, survivor benefits, and Social Security disability income. Even if part of your benefits is taxable on your federal return, none of it counts toward your Wisconsin adjusted gross income.1Wisconsin Department of Revenue. Individual Income Tax – Retired Persons Railroad retirement benefits get the same treatment.2Wisconsin Department of Revenue. Wisconsin Tax Information for Retirees
The $24,000 Retirement Income Subtraction for Age 67 and Up
Beginning with tax year 2025, Wisconsin allows a sizable subtraction for retirement income. If you reach age 67 by the end of the tax year, you can subtract up to $24,000 in qualified retirement plan distributions and IRA withdrawals from your Wisconsin taxable income. When both spouses on a joint return are 67 or older, the combined subtraction rises to $48,000. There is no income limit and no phase-out.3Wisconsin State Legislature. Wisconsin Statutes 71.05 – Income Computation
Qualifying income includes distributions from any qualified plan under the Internal Revenue Code and from traditional IRAs established under 26 USC 408. Inherited IRA distributions also qualify, as long as the person receiving them meets the age requirement.4Wisconsin Department of Revenue. 2025 Fall Tax Updates – Practitioner Questions and Answers Wisconsin Retirement System distributions qualify too; they remain taxable, but the subtraction can offset them.
The Credit Trade-Off You Need to Know About
Claiming the $24,000 subtraction disqualifies you from every Wisconsin income tax credit for that same tax year.3Wisconsin State Legislature. Wisconsin Statutes 71.05 – Income Computation That includes the Homestead Credit, which can be worth up to $1,460. If you have modest retirement income and high property taxes, the Homestead Credit may save you more than the subtraction would. Work through both calculations before filing.
The Older $5,000 Subtraction for Lower-Income Retirees
A separate, narrower subtraction is still available. If you are at least 65 by year-end and your federal adjusted gross income is below $15,000 (or $30,000 for married couples, whether filing jointly or separately), you can subtract up to $5,000 of qualified retirement income.2Wisconsin Department of Revenue. Wisconsin Tax Information for Retirees You cannot claim both subtractions in the same year. For most 67-and-older retirees the $24,000 version wins, unless preserving credit eligibility matters more.
Military, Federal, and State Government Pensions
All retirement payments from the U.S. military retirement system are fully exempt from Wisconsin income tax, regardless of when you served or retired. Retirement payments tied to service with the Coast Guard, the commissioned corps of the National Oceanic and Atmospheric Administration, and the commissioned corps of the Public Health Service are also fully exempt.5Wisconsin Department of Revenue. How Your Retirement Benefits Are Taxed
The federal Civil Service Retirement System (CSRS) exemption is far narrower. Only CSRS payments qualify, and only if you were a member of the system as of December 31, 1963, or you are the beneficiary of someone who was. Payments from accounts established after 1963 are taxable, even if you repurchased previously forfeited pre-1964 service.5Wisconsin Department of Revenue. How Your Retirement Benefits Are Taxed CSRS retirees who don’t meet the pre-1964 cutoff can still use the $24,000 subtraction if they’re 67 or older.
Benefits from the Wisconsin Retirement System are taxable by Wisconsin, following the same treatment as for federal tax purposes.
How Pensions, 401(k)s, and IRAs Are Taxed
Distributions from traditional IRAs, 401(k) plans, 403(b) plans, pensions, and annuities are generally taxable in Wisconsin the same way they’re taxable on your federal return. Wisconsin uses four progressive brackets with rates of 3.50%, 4.40%, 5.30%, and 7.65%.6Wisconsin Department of Revenue. Tax Rates For 2025, the top rate applies to income above $323,290 for single filers and $431,060 for married couples filing jointly.
Required minimum distributions beginning at age 73 flow into taxable income for Wisconsin purposes just as they do federally. Large RMDs can quickly exceed what the $24,000 or $48,000 subtraction covers, leaving the balance taxed at the regular rates.
Property Taxes and the Credits That Help Retirees
Property tax is often the biggest recurring bill for Wisconsin homeowners, and effective rates run above the national average. The exact amount depends on your municipality, school district, and county. Two credit programs help.
The Homestead Credit
The Wisconsin Homestead Credit is a refundable credit that offsets property taxes or rent. To qualify, you must be a full-year Wisconsin resident, at least 18 years old, and have household income below $24,680. You must also meet at least one additional condition: you or your spouse had earned income during the year, you or your spouse is disabled, or you or your spouse is at least 62 years old by year-end.7Wisconsin Department of Revenue. Homestead Credit Tax Year 2025 The maximum credit is $1,460.8Wisconsin Department of Revenue. 2025 Schedule H – Wisconsin Homestead Credit
Renters qualify too. Wisconsin treats a portion of rent paid as equivalent to property taxes for Homestead Credit purposes. You file the claim on Schedule H alongside your state income tax return. If you don’t owe income tax and aren’t otherwise required to file, you can still submit Schedule H on its own to claim the refund.8Wisconsin Department of Revenue. 2025 Schedule H – Wisconsin Homestead Credit Remember the trade-off: claiming the $24,000 retirement subtraction wipes out this credit for the same year.
The School Levy Tax Credit
Every taxable property in Wisconsin automatically receives the School Levy Tax Credit, which shows up as a line item on the property tax bill. There is no application and no separate form. The amount reflects your property’s assessed value as a share of your municipality’s total assessed value.9Wisconsin Department of Revenue. School Levy Tax Credit
Sales Tax on What Retirees Buy
Wisconsin’s base sales tax rate is 5%. Seventy of the state’s 72 counties add a 0.5% local sales tax, so the combined rate is 5.5% in most of the state.6Wisconsin Department of Revenue. Tax Rates Two exemptions matter most for retirees: groceries bought for home consumption (prepared foods and soft drinks are not exempt) and prescription medications. Those are the two spending categories that tend to dominate a retiree’s budget.
No State Estate Tax, No Inheritance Tax
Wisconsin imposes neither an estate tax nor an inheritance tax. The state’s estate tax was tied to the federal credit for state death taxes, and when that federal credit was phased out, Wisconsin’s tax dropped to zero. The statute formally confirms the tax does not apply to deaths occurring after December 31, 2012.10Wisconsin State Legislature. Wisconsin Statutes Chapter 72 – Estate Tax A beneficiary owes the state nothing on an inheritance from a Wisconsin decedent.
Federal estate tax is separate. For 2026, estates are exempt from federal estate tax up to $15,000,000 per individual.11Internal Revenue Service. What’s New – Estate and Gift Tax Married couples can effectively shelter up to $30,000,000 through portability. Estates below those thresholds still need proper documentation of asset values for IRS purposes but won’t owe federal estate tax.12Internal Revenue Service. Frequently Asked Questions on Estate Taxes