Evers administration should update income tax withholding schedules to align with tax relief

Failure to do so will result in taxpayers providing a $700 million interest-free loan to the government in both 2021 and 2022

By Katherine Loughead

On July 8, Gov. Tony Evers approved the biennial budget (AB 68) with partial vetoes. The individual income tax rate reduction from 6.27% to 5.3% was enacted as written by the Legislature, with the tax relief effective retroactive to January 1, 2021. However, the governor vetoed a technical provision in the budget that would have directed the Wisconsin Department of Revenue to update the state’s individual income tax withholding tables to reflect the change, to be used by employers beginning January 1, 2022.

The governor’s veto message states his reasoning as follows: “I am vetoing this section because I object to requiring the Department of Revenue to make these withholding table adjustments at a cost of approximately $700 million while other critical priorities have not been sufficiently funded by the Legislature.”

Until the Department updates the state’s income tax withholding tables, taxes will continue to be withheld from taxpayers’ paychecks at the 6.27% rate, a highly unusual move that will result in taxpayers providing an interest-free loan to the government to the tune of approximately $700 million each year of the biennium. While taxpayers will see the tax relief in the form of a lump sum refund when they file their tax returns each spring, they will pay more than they legally owe throughout the year until the withholding tables are updated to reflect the change.

Separately, Assembly Bill 406, legislation that would freeze the state’s unemployment insurance tax rates through 2023, was signed by the governor, but Assembly Bill 191, which would repeal the state’s tangible personal property tax, was vetoed by the governor.

Read more about the $2 billion income tax relief here.

Katherine Loughead is a senior policy analyst with the Washington, D.C.-based Tax Foundation.