Does Wisconsin Tax Pensions? Exemptions and the $5,000 Subtraction

Wisconsin does tax pensions, and most retirement income is taxed at the state’s ordinary income rates of 3.50% to 7.65%. The important exceptions are military retirement pay, Social Security, railroad retirement benefits, and pensions from a short list of legacy public-employee systems, all of which are fully exempt from Wisconsin income tax.¹²

Which Pensions Wisconsin Taxes

The default rule is simple. If a retirement distribution is taxable on your federal return, Wisconsin taxes it too. The state begins with your federal adjusted gross income and then applies its own subtractions, so traditional IRA withdrawals, 401(k) distributions, private pensions, and annuity payments generally flow through to your state return as ordinary income.¹

That includes benefits from the current Wisconsin Retirement System (WRS), which covers most state and local government workers, teachers, and university staff. WRS pensions are fully taxable by Wisconsin. People sometimes assume the pre-1964 exemption (discussed below) shields all state pension income, but it only reaches members of the predecessor systems as of December 31, 1963. Everyone who joined afterward pays state tax on their pension.¹

Because Wisconsin follows federal taxability, anything you already excluded federally stays excluded here. Qualified Roth IRA and Roth 401(k) withdrawals are not in your federal gross income, so Wisconsin doesn’t tax them either.

Wisconsin’s four brackets for 2025 run 3.50%, 4.40%, 5.30%, and 7.65%. A single filer hits the top rate above $323,290 of taxable income; joint filers get wider brackets at the same four rates.² Where your pension income lands depends on your total taxable income for the year.

Retirement Income Wisconsin Does Not Tax

Several categories of retirement pay are completely free of Wisconsin income tax, no matter the amount. These exemptions come from Wisconsin Statute 71.05 and sit on top of your standard deduction and any credits.

Military and Uniformed Services Retirement Pay

All U.S. military retirement pay is exempt. The exemption also covers retirement payments from the Coast Guard, the commissioned corps of the National Oceanic and Atmospheric Administration, and the commissioned corps of the Public Health Service.³ There is no income cap and no age requirement. Subtract the full amount on your Wisconsin return.

Social Security Benefits

Wisconsin does not tax Social Security at all. Retirement, disability, and survivor benefits are fully exempt at the state level, even when a portion is taxable federally.¹ Federally, up to 85% of your benefits can be taxable once your provisional income clears $25,000 (single) or $32,000 (joint).⁴ That federal tax still applies. Wisconsin simply ignores the income.

Railroad Retirement Benefits

Railroad retirement and supplemental annuity payments are exempt. Federal law bars states from taxing railroad retirement supplemental annuities, and Wisconsin lets you subtract these amounts from adjusted gross income.⁵

Pre-1964 Public-Employee Pensions

A narrow legacy rule exempts pension payments from certain public-employee retirement systems if the recipient (or the person whose account generated the payments) was a member of that system on December 31, 1963, or had already retired by that date. The qualifying systems are the U.S. Civil Service Retirement System, the U.S. Military Employee Retirement System, the City of Milwaukee Employees’ Retirement System, the Milwaukee County Employees’ Retirement System, the Sheriff’s Annuity and Benefit Fund of Milwaukee County, the Police Officer’s Annuity and Benefit Fund of Milwaukee, the Fire Fighter’s Annuity and Benefit Fund of Milwaukee, the Milwaukee Public School Teachers’ Annuity and Retirement Fund, and the Wisconsin State Teachers Retirement System.³

Beneficiaries of someone who met either condition also qualify. Only the portion of benefits tied to pre-1964 membership is exempt; service that began after December 31, 1963, or came through a system not on the list, is taxed normally.¹

The $5,000 Retirement Income Subtraction

Retirees who don’t qualify for a full exemption may still reduce their Wisconsin tax by subtracting up to $5,000 of qualified retirement plan income, but the thresholds are tight. You must meet both conditions:

You (or your spouse on a joint return) must be at least 65 by December 31 of the tax year.
Your federal adjusted gross income must be under $15,000 if single, or under $30,000 of combined income if filing jointly.

The subtraction covers distributions from qualified retirement plans, pensions, and annuities that would otherwise be taxable.⁶ Go a dollar over the income limit and you lose the whole subtraction.¹

How to Claim the Exemptions on Your Return

Start with Form 1099-R from your plan administrator. Box 1 shows the total distribution; Box 2a shows the federally taxable amount, which is also Wisconsin’s baseline.

Exemptions and subtractions go on Schedule SB, filed with Form 1. Schedule SB has separate lines for military and uniformed services retirement, local and state retirement benefits under the pre-1964 rule, federal retirement benefits, railroad retirement benefits, and the $5,000 retirement income subtraction.⁷ A veteran claiming military pay uses a different line than a retiree claiming the pre-1964 public-employee exemption, so match each 1099-R to the correct source before filing.

Withholding and Estimated Payments

Wisconsin does not require mandatory state withholding on pension payments. If you draw benefits from the Wisconsin Retirement System and don’t request withholding, nothing comes out for state tax. You can elect withholding based on the state tax tables (which adjusts automatically as tables or your benefit change) or request a flat dollar amount.⁸

Without withholding, you probably need to make quarterly estimated payments. Wisconsin generally requires them if your return will show a balance due of $500 or more, and missing a quarter triggers an interest charge. Due dates follow the federal calendar: April 15, June 15, September 15, and January 15 of the following year.⁶ Setting up withholding through your pension administrator is usually the simpler path; it spreads the burden across every payment and skips the quarterly paperwork.

1
Department Of Revenue. Individual Income Tax – Retired Persons
2
Department Of Revenue. Individual Income Tax Rates
3
Wisconsin State Legislature. Wisconsin Code 71.05 – Income Computation
4
Internal Revenue Service. IRS Reminds Taxpayers Their Social Security Benefits May Be Taxable
5
Legal Information Institute. Wisconsin Administrative Code Tax 3.098
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Department Of Revenue. Wisconsin Tax Information for Retirees
7
Department Of Revenue. 2025 Form 1 Instructions
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Wisconsin Department of Employee Trust Funds. Tax Withholding for Retirement Payments