Wisconsin: Elective passthrough entity tax regime enacted

December 21, 2018

Legislation has been enacted in Wisconsin to allow entities treated as partnerships for federal income tax purposes—and S corporations—to elect to pay tax at the entity level. 

Senate Bill 883 was signed into law on December 14, 2018.

The election to pay tax at the entity level is available if consent is obtained from the persons who hold more than 50% of the capital and profits of a partnership or shares of an S corporation. With this consent, the partnership or S corporation may elect to be taxed at the entity level at an income tax rate of 7.9% of net income reportable to Wisconsin (the 7.9% rate is higher than the top marginal individual income tax rate of 7.65%).

The election must be made annually on or before the due date, or the extended due date if applicable, of the entity’s return. If the owners decide to revoke an election, that revocation must also occur on or before the due date, or the extended due date if applicable, of the entity’s return.

KPMG observation

The general effect of making the election is that the income would be taxed at the entity level—and not taxed again at the individual level because the individual owners will be allowed to subtract from their Wisconsin adjusted gross income, the owner’s share of income or gain from the partnership or S corporation. A particular owner who receives a loss or deduction allocation from a partnership or S corporation would need to add back these amounts.

Read a December 2018 report [PDF 38 KB] prepared by KPMG LLP

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