Wisconsin Income Tax on Military Pay and Retired Pay

Wisconsin has an individual income tax, and unlike its neighbours to the west it does not reach military retired pay at all. All retirement payments received from the U.S. military retirement system are exempt from Wisconsin income tax, and the Department of Revenue states that this includes payments from the Retired Serviceman's Family Protection Plan and the Survivor Benefit Plan. There is no cap, no age threshold, no years-of-service requirement and no phase-out. A surviving spouse receiving an SBP annuity is inside the same exemption as the retiree was. Active duty pay is a more recent and more limited story. For taxable years beginning after December 31, 2020, a service member may subtract basic, special and incentive pay received from the federal government under chapters 3 and 5 of title 37 for active duty. The subtraction covers the regular and reserve components under the Secretaries of Defense, Army, Navy and Air Force, and the Coast Guard. Drill pay used to be the gap, and from tax year 2026 it is not. The active duty subtraction in 71.05(6)(b)56. does not reach basic pay for inactive duty training, and through tax year 2025 a drilling reservist or guardsman could not subtract drill pay at all. 2025 Wisconsin Act 205, enacted April 8, 2026, created a further subtraction "for taxable years beginning after December 31, 2025": any basic pay received under 37 USC 204(a)(2) by a member of the National Guard or a reserve component, which is the pay for active duty for training and annual training, and any inactive-duty training compensation under 37 USC 206 or 206a received by a member of a reserve component, which is drill pay. The act numbered it 71.05(6)(b)57., but an earlier act had already used 57. for financial exploitation losses, so the published statutes print it as 57m. and a reader looking for the act's number finds the wrong subdivision. The second clause names only "a reserve component"; the Army and Air National Guard are reserve components under 10 USC 10101, so Guard drill pay is inside it. The Department of Revenue's military FAQ has not caught up. It still tells filers not to include "basic pay for inactive duty training" in the subtraction, which is right for the active duty subtraction and wrong as a description of what a drilling member may now subtract. The basic allowance for housing is not subtractable, though it is not federally taxable in the first place and so does not enter the Wisconsin computation anyway. Combat pay that is exempt for federal purposes is exempt for Wisconsin. VA disability compensation, VA pension, Dependency and Indemnity Compensation and military disability retirement paid for a service-connected injury are outside federal gross income and therefore outside the Wisconsin computation. Wisconsin does not tax social security benefits either. Wisconsin gives a filing extension for service in a combat zone, following the federal pattern. Two credits that a veteran may still find described as available have closed. The armed forces member tax credit in 71.07(6m), which allowed up to $300 of military income earned while stationed outside the United States, accepts no new claims for taxable years beginning after December 31, 2020. And the veteran employment credit in 71.07(6n), which paid an employer for hiring a disabled veteran, was closed to taxable years beginning after December 31, 2012. Both are still in the statute book with their substantive text intact, which is why summaries keep repeating them, and both are now on a timetable to go: 2025 Wisconsin Act 118, the obsolete tax provisions act, repeals 71.07(6m) on January 1, 2027 and 71.07(6n) on January 1, 2034. What remains, and is much larger than either, is the veterans and surviving spouses property tax credit in 71.07(6e).