The proposed laws would supply a partial tax break for unemployment funds

“Unemployment Office” (Bytemarks | Flickr CC BY 2.0)

State lawmakers will vote Wednesday on a bill to temporarily waive Wisconsin income tax on part of unemployment benefits collected during the COVID-19 pandemic.

The Senate version of the legislation – SB-267 – Will vote in the Senate’s Labor and Regulatory Reform Committee.

The bill is a rarity in that it was drafted by Democrats but accelerated in Republican-controlled state legislation. The first $ 10,200 in unemployment benefits in 2020 and 2021 are exempt from state income tax.

Senator Tim Carpenter (D-Milwaukee) originally attempted to insert the provision as an amendment in February when the legislature adopted legislation Allow recipients of federal government Paycheck Protection Program (PPP) funds to withhold a business expense tax deduction on the expenses for which they were reimbursed under the program. At that time, his amendment failed politically in the Senate and also in the assembly.

Carpenter says he decided to write a separate invoice for the exemption.

“We have dealt with a lot of people – in the middle of the night, replying to emails or [who have called] During the day and they have expressed the difficulty of being unemployed through no fault of their own, “says Carpenter about the pandemic. “For many people it is the first time that they are unemployed. And so I thought these people were the most vulnerable and should get some kind of support. “

The legislation mirrors a provision in the Federal American Rescue Plan Act (ARPA) that exempts the first $ 10,200 in unemployment benefit income from federal income tax in 2020 and 2021.

Carpenter praised Senator Steve Nass (R-Whitewater), chairman of the working committee, for scheduling the move for a hearing last month and then a vote on Wednesday.

A Tax assessment The State Department of Revenue (DOR) estimates that the bill would cut state tax revenue on unemployment benefits paid in 2020 by $ 121 million. While the UI payments for 2021 – and therefore tax revenue – are unknown, the hint suggests that the amount will likely be closer to the 2020 number than 2019.

On Monday, Nass handed one Amendment proposal on the bill, which would make up for that loss by transferring up to $ 242 million of the state’s $ 3.2 billion grant under the American Rescue Plan Act (ARPA) to the DOR.

The language of the federal COVID-19 relief measure states that the funds cannot be used to offset government tax cuts.

When asked Tuesday whether the change would render the legislation unusable, Nass’ office sent an email message sent to committee members after the public hearing of the bill on April 20. In that message, an attorney for the impartial State Legislative Council gave this guidance from the U.S. The Treasury Department points out an exception to this limitation: changes to state tax laws to align with federal tax laws.

The department “gave one statement on April 7, 2021, noting that changes to income tax that only bring a state’s tax laws in line with recent changes to the federal tax law are permissible and would not violate the restriction that would otherwise allow the use of funds to offset a decrease prohibits tax revenue ”to the memo of the Legislative Council.


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