An income tax subtraction for qualified tips and for qualified overtime compensation; state aid for school districts; surplus refund payments; increasing funding for special education and school age parents programs; state aid to technical colleges and the technical college district revenue limit; and making an appropriation. (FE)

Currently, DPI provides 1) special education aid to school districts, independent charter schools, CESAs, and CCDEBs; 2) aid for school districts, CESAs, and CCDEBs for providing physical or mental health treatment services to private school and tribal school pupils; and 3) aid for school age parents programs to school districts only.

Per pupil aid; state aid Under current law, per pupil aid is a categorical aid paid to school districts. Per pupil aid is funded from a sum sufficient appropriation and is not considered state aid for purposes of revenue limits. Under current law, the amount of per pupil aid paid to a school district is calculated using a three-year average of the number of pupils enrolled in the school district and a per pupil amount set by law. For purposes of this categorical aid, the number of pupils enrolled in a school district does not include pupils enrolled in an independent charter school. Currently, the per pupil amount is $742. This aid is paid to school districts on the fourth Monday in March.

The bill creates a second per pupil aid for school districts that is funded from a sum certain appropriation and is considered state aid for purposes of revenue limits (per pupil state aid). Under the bill, beginning in the 2026-27 school year, the per pupil amount of per pupil state aid is determined by dividing the amount appropriated for per pupil state aid for the current school year by a three-year average of the number of pupils enrolled statewide. The per pupil amount is then multiplied by a three-year average of the number of pupils enrolled in a school district. For purposes of per pupil state aid, the number of pupils enrolled in a school district includes pupils enrolled in an independent charter school other than a legacy independent charter school. The bill appropriates $302,500,000 for per pupil state aid in the 2026-27 school year. Finally, the bill requires per pupil state aid to be paid on a schedule that is similar to the distribution schedule for equalization aids.

State aid to technical colleges and the technical college district revenue limit The bill increases state funding for technical colleges and reduces by an equivalent amount the revenue that technical college district boards may generate from the property tax levy.

Under current law, with certain exceptions, a technical college district board may not increase its revenue each school year by more than the greater of 1) 0 percent or 2) the percentage change in the district’s equalized value due to new construction, less improvements removed, between the previous year and the current year. The amount of this limit is called the “valuation factor.” A district board’s revenue is the sum of its tax levy for operations and the amount of aid it receives for property tax relief and tax-exempt personal property.

The bill increases the amount of state aid annually distributed to technical college district boards by $50,000,000, which also results in an equivalent reduction in the amount of the property tax levy authorized for technical college district boards.

Income tax subtraction for qualified tips The bill creates an income tax subtraction for qualified tips that a claimant may deduct on the claimant’s federal income tax return. Under current federal law, a person may deduct certain qualified tips from the person’s income for federal income tax purposes. Federal law generally defines “qualified tips” as cash or charged tips received by an individual in an occupation that traditionally and customarily receives tips, as determined by the secretary of the U.S. Department of the Treasury. Under current federal law, the federal deduction for qualified tips sunsets after tax year 2028. The bill contains no sunset for the subtraction for qualified tips.

Income tax subtraction for qualified overtime compensation The bill creates an income tax subtraction for qualified overtime compensation that a claimant may deduct on the claimant’s federal income tax return. Under current federal law, a person may deduct certain qualified overtime compensation from the person’s income for federal income tax purposes. Federal law generally defines “qualified overtime compensation” as overtime compensation paid to a person under the federal Fair Labor Standards Act that is in excess of the person’s regular rate of pay. Under current federal law, the federal deduction for qualified overtime compensation sunsets after tax year 2028. The bill contains no sunset for the subtraction for qualified overtime compensation.

Surplus refund payments The bill provides a surplus refund payment to taxpayers who filed a Wisconsin individual income tax return for tax year 2024 and who owed Wisconsin individual income tax for that year. The payment is $600 for married persons filing a joint return and $300 for all other individuals. The payment may not exceed the amount of the taxpayer’s 2024 net income tax liability. No payment may be paid to any of the following: 1) taxpayers who were a dependent of another taxpayer in tax year 2024; 2) certain taxpayers who are deceased; or 3) part-year residents or nonresidents whose Wisconsin income in tax year 2024 was less than 90 percent of total income.

Under the bill, the Department of Revenue must identify taxpayers who are eligible to receive the payments and the Department of Administration must issue the payments without taxpayers having to take any further action. The bill requires that DOA issue the payments no later than September 15, 2026. A taxpayer who does not receive the amount of payment for which he or she is eligible may file a claim by using a portal on DOR’s website. No claims may be filed after December 15, 2026.

Because this bill relates to an exemption from state or local taxes, it may be referred to the Joint Survey Committee on Tax Exemptions for a report to be printed as an appendix to the bill.