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16.3 Income Deductions

16.3.1 Child Support Payments

16.3.2 Pretax Deductions

16.3.3 Tax Deductions

1. Student loan interest

2. Higher education expenses

3. Self-employment tax deduction

4. Spousal support, alimony, or maintenance

5. Teachers' tax-deductible expenses

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

7. Penalties for early withdrawal of funds

8. Performing artists tax-deductible expenses

9. Military reserve members' tax-deductible expenses

10. Out-of-pocket costs for a job-related move

11. Loss from sale of business property

12. Individual Retirement Account (IRA) contributions

13. Fee-based official tax-deductible expenses

14. Domestic production activities deduction

15. Health Savings Account deduction

16. Self-employed health insurance deduction

17. Allowable write-in expenses

18. Live-in care providers

 

16.3.1 Child Support Payments

Child support payments are not allowed as an income deduction.

 

Spousal support, alimony, or maintenance can 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 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 NOL on IRS tax forms, is allowed as an income deduction. If claimed, it would be found on Line 21 of the IRS Form 1040.

 

See #15 Capital and Ordinary Gains and Losses in Section 16.5 Other Income 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:

 

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. Higher education expenses

Includes tuition and amounts paid for books or fees, but only if those amounts are required to be paid to the institution as a condition of enrollment or attendance. This deduction may not be claimed for expenses that were paid with tax-free educational assistance. Grants and scholarships used for tuition and fees are generally non-taxable, therefore this deduction cannot be claimed for the portion of tuition and fees that were paid for with grants and scholarships. This is capped at a monthly amount of $333.

3. 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.

4. Spousal support, alimony, or maintenance

The amount paid for court ordered spousal support, alimony or maintenance or payments under Section 71 for a current or prior spouse as a result of a legal separation or divorce. Do not deduct more than the court ordered amount. Do not allow any deduction if the court order designates the payments as being non-taxable.

5. Teachers' tax-deductible expenses

Applies to K-12 teachers who have up to $250 in out-of-pocket work expenses (expenses not paid for by the employer). This is capped at a monthly amount of $21.

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

Examples of these plans include:  

7. 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.

8. 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:

9. 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.

10. Out-of-pocket costs for a job-related move

Applies to individuals who paid out-of-pocket expenses for a job-related move and who meet both the following criteria:  

11. 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.

12. 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.

13. 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.

14. 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.

15. 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

16. 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.

17. Allowable write-in expenses

These deductions include:  

18. 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 conditions listed in #45 Live-In Care Providers in Section 16.2 Income Types Not Counted, 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.

 

 

 

This page last updated in Release Number: 17-04

Release Date: 12/08//2017

Effective Date: 08/31/2017