State of Wisconsin Department of Health Services

Release 24-02 August 22, 2024

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16.3 Income Deductions

16.3.1 Child Support Payments

Child support payments are not allowed as an income deduction.

Spousal support, alimony, or maintenance payments may be able to be claimed as a BadgerCare Plus tax deduction (see Section 16.3.3 Tax Deductions).

16.3.2 Pretax Deductions

Pre-tax deductions are allowed if the payments are taken out of the individual’s paycheck on a pre-tax basis. Examples include but are not limited to:

1. Health Insurance premium payments, including pre-tax premium payments for medical, dental or vision plans
2. Health Savings Account (including flexible spending accounts) contributions
3. Retirement contributions
4. Parking & Transit costs
5. Child Care Savings Account contributions
6. Group Life Insurance premium payments

16.3.3 Tax Deductions

Monthly expenses related to tax deductions from page one of the IRS Schedule 1 (Form 1040) are allowed as income deductions for the current year, even if the individual does not plan on filing taxes. If the expense is not incurred on a monthly basis, it will be prorated and counted as a monthly expense.

Most of these deductions are not common, and they do not include itemized tax deductions, like charitable contributions or mortgage interest.

A net loss carryover from previous periods, known as an NOLnet operating loss on IRS tax forms, is allowed as an income deduction. An NOL should be considered as an ongoing tax deduction but should be reviewed each tax year. If claimed, it would be found on of the IRS Schedule 1 (Form 1040).

See Section 16.5 Other Income, #15 Capital and Ordinary Gains and Losses for information on counting capital losses.

In addition, a few deductions have caps, as noted in detail below.  If an individual reports and verifies a monthly expense that is more than the monthly cap, the deduction will be the amount of the cap.

1. Student loan interest

Interest on a loan taken to pay for school expenses for the following people at the time the loan was taken out:

• Their spouse;
• Their child under age 19; or
• Their child under age 24 who was a student, lived with the individual for more than half a year, did not provide more than half of their own support for that year, and did not earn more than $3,900 during that year.

Do not count interest on a loan used for anything besides paying for education or if a relative or employer gave the loan.

This deduction is capped at a monthly amount of $208.

2. Self-employment tax deduction

Applies to individuals who are self-employed, who owe self-employment tax, and who are able to deduct a portion of the self-employment tax they pay. Only deduct the portion that the person can deduct on their tax return (as calculated on Schedule SE), not the entire amount of self-employment tax that is paid.

3. Spousal support, alimony, or maintenance

The amount paid for court ordered spousal support, alimony or maintenance or payments under Internal Revenue Code Section 71 for a current or prior spouse as a result of a legal separation or divorce can be deducted if the payments are paid under a separation or divorce agreement finalized on or before December 31, 2018. 

Payments cannot be deducted if they meet one of the following criteria: 

• The payment was received under a separation or divorce agreement finalized on or after January 1, 2019.
• The payment was received under a separation or divorce agreement finalized on or before December 31, 2018, but modified on or after January 1, 2019, and provides that Section 11051 of Pub. L. 115-97 applies to the modification which makes the alimony/spousal support non-taxable. 

Do not deduct more than the court ordered amount. Do not allow any deduction if the separation or divorce agreement designates the payments as being non-taxable or the date that the separation or divorce agreement was finalized or modified cannot be verified.

4. Teachers' tax-deductible expenses

Applies to K-12 teachers who have up to $300 in out-of-pocket work expenses (expenses not paid for by the employer). This is capped at a monthly amount of $25.

5. Self-employed Simplified Employee Pension (SEP) and simple or qualified plan contributions

Examples of these plans include:  

• Simplified Employee Pension (SEP) Plan
• Savings Incentive Match Plan For Employees (SIMPLE)
• Qualified Plan Contributions

Note	The person's personal contributions to these plans can be counted for BadgerCare Plus as tax deductions, but they are not counted as business expenses when calculating the self-employment income.

6. Penalties for early withdrawal of funds

Penalties to a bank or financial institution for withdrawing funds early from a savings account where money must be left in the account for a fixed period of time, such as a time saving account, certificate of deposit (CD) or an annuity.

7. Performing artists tax-deductible expenses

Applies to performing artists who have out-of-pocket business expenses not paid by the employer and meet all of the following criteria:

• Worked for at least two employers who each paid at least $200
• Did not earn more than $16,000 for their work in the current year
• Had out-of-pocket expenses that were more than 10% of their earnings

8. Military reserve members' tax-deductible expenses

Applies to travel expenses for members of the Armed Forces Reserve who travel more than 100 miles away from home to perform work for the Armed Forces Reserve.

9. Out-of-pocket moving expenses for military members

Out-of-pocket moving expenses can be deducted if the person is an active duty member of the military who is ordered to move and that move is a permanent change of station as determined by the military.

10. Loss from sale of business property

Applies to self-employed individuals that had a loss from the sale or exchange of property that they owned for their business.

11. Individual Retirement Account (IRA) contributions

Applies to individuals who had income from a job and made contributions to an IRA. Also applies to self-employed individuals who made contributions to an IRA they set up themselves.

Note	The person's personal IRA contributions can be counted for BadgerCare Plus as tax deductions, but they are not counted as business expenses when calculating the self-employment income.

12. Fee-based official tax-deductible expenses

Applies to individuals who are fee-based officials and have out-of-pocket business expenses. Examples of fee-based officials include chaplains, county commissioners, judges, justices of the peace, sheriffs, constables, registrars of deeds or building inspectors.

13. Domestic production activities deduction

Applies to self-employed individuals who led the production of things like property, electricity, natural gas, or potable water, as long as these things were produced in the United States. This also applies to individuals who invented or created software, recordings, or films in the United States.

14. Health Savings Account deduction

Applies to contributions made to a health savings account for someone enrolled in a high-deductible health plan, as specified on Form 8889. Contributions made by employers, through roll-overs, or through distributions from Individual Retirement Accounts are not deductible.

15. Self-employed health insurance deduction

Applies to self-employed people who are paying premiums for a medical, dental, or long-term care plan established under their business that covers them, their spouse, and/or their dependents.

16. Allowable write-in expenses

These deductions include:  

• Contributions to Archer MSAs
• Deductions attributable to rents and royalties
• Certain deductions of life tenants and income beneficiaries of property
• Jury duty pay given to the employer because the juror was paid a salary during duty
• Reforestation expenses
• Attorney fees and court costs paid to recover a judgment or settlement for a claim of unlawful discrimination, a claim against the U.S. Government, or a claim under section 1862(b)(3)(A) of the Social Security Act
• Attorney fees relating to awards to whistleblowers
• Contributions to section 501(c)(18)(D) pension plans
• Contributions by certain chaplains to section 403(b) plans

17. Live-in care providers

The IRS requires live-in care providers to include the income paid to their self-employment business when it is reported on a 1099 form. When that income meets the required conditions (see Section 16.2 Income Types Not Counted, #45 Live-In Care Providers), the providers are allowed to list all of that 1099 income as an expense in Part V of their Schedule C. Likewise, the self-employment income of the care provider has to be counted for EBD Medicaid and other IM programs. To disregard the self-employment income for BadgerCare Plus, the case should receive a tax deduction amount equal to the income.

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The information concerning the BadgerCare Plus program provided in this handbook release is published in accordance with: Titles XI, XIX and XXI of the Social Security Act; Parts 430 through 481 of Title 42 of the Code of Federal Regulations; Chapter 49 of the Wisconsin Statutes; and Chapters HA 3, DHS 2 and 101 through 109 of the Wisconsin Administrative Code.

Notice: The content within this manual is the sole responsibility of the State of Wisconsin's Department of Health Services (DHS). This site will link to sites outside of DHS where appropriate. DHS is in no way responsible for the content of sites outside of DHS.

Publication Number: P-10171