Claiming the State and Local Income Tax Deduction on Federal Taxes

You'll have to itemize, and that might mean paying more than necessary

Expenses Eligible for Deduction as State and Local Income Taxes. Withholding for state and local income taxes as shown on Form W-2 or Form 1099. Extension tax payments you made during the year. Payments made during the year for taxes that arose in a previous year. Estimated tax payments you made during the year. Mandatory contributions to state benefit funds.
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The Balance / Miguel Co

Itemizing your deductions means listing them in detail by completing Schedule A and submitting it to the Internal Revenue Service (IRS) with your Form 1040 tax return. Itemizing can sometimes help reduce your taxable income, but a few tax rules can limit some of them. The state and local income tax (SALT) deduction is one that's subject to certain limitations.

State and local taxes can sometimes be significant, so it's an obvious advantage to be able to deduct the full amount you pay, but that's not always possible. The SALT deduction lets you deduct up to $10,000 total in combined property taxes and state and local income taxes or sales taxes, but not both.

Key Takeaways

  • Itemizing your tax deductions can help reduce your taxable income.
  • The state and local income tax (SALT) deduction is deductible but is subject to certain limitations.
  • The SALT deduction lets you deduct up to $10,000 total in combined property taxes and state and local income taxes or sales taxes, but not both.

Rules for the SALT Deduction

All income taxes imposed by a state or local jurisdiction can be deducted, subject to a few rules. First, you must itemize your deductions on Schedule A to claim them. However, itemizing means, you forego the standard deduction, which can be more than the total of your itemized deductions for the tax year.

Note

Make sure that your itemized deductions, including all other deductions you're qualified to claim in addition to state and local tax deductions, exceed the standard deduction for your filing status, or itemizing can actually cost you tax dollars.

Standard Tax Deductions

Below are the standard deductions for 2022 and 2023.

For the 2022 tax year (the return you'll file in 2023), the standard deductions are:

  • For single taxpayers and for those who are married but filing separate returns: $12,950
  • For heads of households: $19,400
  • If you're married and filing jointly, or if you're a qualifying surviving spouse with a dependent: $25,900

For the 2023 tax year (the return you'll file in 2024), the standard deductions are:

  • For single taxpayers and for those who are married but filing separate returns: $13,850
  • For heads of households: $20,800
  • If you're married and filing jointly, or if you're a qualifying surviving spouse with a dependent: $27,700

Tax Deduction Requirements

The tax must be imposed on you personally. You can't claim a deduction for income taxes paid on behalf of one of your dependents—and in some cases, even by your spouse. You must have paid them during the tax year for which you're filing.

Eligible expenses that can be deducted as state and local income taxes include:

  • Withholding for state and local income taxes, as shown on your Form W-2 or Form 1099
  • Estimated tax payments you made during the year
  • Extension tax payments you made during the year
  • Payments made during the year for taxes that arose in a previous year
  • Mandatory contributions to state benefit funds

Tax Deduction Limits

The deduction for state and local taxes is no longer unlimited. At one time, you could deduct as much as you paid in taxes, but the Tax Cuts and Jobs Act (TCJA) limits the SALT deduction to $10,000, or just $5,000 if you're married but file a separate tax return. This cap applies to state income taxes, local income taxes, and property taxes combined.

For example, you might pay $6,000 in state income taxes and another $6,000 in property taxes for the year, but you can't claim the entire $12,000. You can only claim the capped amount of $10,000.

Note

This TCJA rule regarding tax deduction limits will stand through at least 2025 when the law will potentially expire unless Congress acts to renew it.

Documents You'll Need for Filing

Payments of state and local income taxes can show up on a variety of different documents. Keep copies of your checks or your bank statements showing the debits from your account when you pay estimated taxes to your state or municipality.

State taxes can also show up on various documents related to tax withholding. Keeping a record of all this paperwork will help you maintain a tally of how much you can deduct, up to the TCJA limit. These documents should show how much state or local tax you paid during the year:

  • Form W-2 (Wage and Tax Statement): Shows state income tax withholding in box 17. Local income tax withholding is shown in box 19, and contributions to state benefit funds can be shown in box 14.
  • Form W-2G (Certain Gambling Winnings): This might show state income tax withholding in box 15 and local income tax withholding in box 17.
  • Form 1099-G (Certain Government Payments): This should show state income tax withholding in box 11.
  • Form 1099-INT (Interest Income): The 1099-T might show state income tax withholding in box 17.
  • Form 1099-DIV (Dividends and Distributions): This might show state income tax withholding in box 16.
  • Form 1099-R (Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts): Form 1099-R shows state income tax withholding in box 14 and local income tax withholding in box 17.
  • Form 1099-MISC (Miscellaneous Information): This form should show state income tax withholding in box 16.
  • Form 1099-NEC (Nonemployee Compensation): This one might show state income tax withholding in box 5.
  • Bank statements with copies of canceled checks or debits can prove estimated payments and after-the-fact payments of state tax.
  • The portion of the previous year's state refund that might have been applied toward estimated taxes should be found on that year's tax return.

Year-End Tax Planning

The state income tax deduction can help with year-end tax planning, because taxpayers can elect to increase their state tax payments at the eleventh hour to cover any expected state liability that will occur for the year.

For example, you could pay your fourth state estimated tax payment, normally due on Jan. 15, in December. That would boost your itemized deductions and potentially reduce your federal tax liability for the year.

Check to see whether increasing state tax payments at the end of the year will affect your federal return. Taxpayers who are affected by the alternative minimum tax (AMT) will likely find that they receive little or no benefit on their federal return by accelerating state payments. State and local income tax deductions are added back to your taxable income when calculating the AMT.

Note

State and local income taxes are deductible when you're calculating your regular federal income tax, but they're not deductible when you're calculating the AMT.

The IRS has slammed the door on paying estimated property taxes for the following year before the year's end in order to claim a deduction in the current year. Those taxes must have been officially assessed as of the date you pay them, which often doesn't happen until after the first of the year.

The Sales Tax Option

You might consider deducting sales tax instead of the state income tax as an alternative strategy—it's an either/or option. You can claim income taxes or sales taxes but not both.

This might not change your federal tax liability, because the sales tax deduction is also eliminated for purposes of calculating the AMT if you're subject to it. Deducting the sales tax instead can make any state tax refunds non-taxable in the following year.

Special Rules for Spouses

Married couples who file separate returns must both claim the standard deduction, or they must both itemize.

Married taxpayers who are filing joint returns can deduct all state and local income taxes that each of them paid during the year, regardless of whether those tax payments were made separately or jointly, up to $10,000. Married taxpayers who file separate returns can only deduct state and local income taxes paid by them personally, however, up to $5,000.

Most income is considered community property if you or your spouse live in one of the nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin as of 2022. Each spouse must report half of the income on their tax return when they file separately. Deductions are split in half between the two spouses as well.

Frequently Asked Questions (FAQs)

What do state and local taxes pay for?

As long as the taxes don't directly contradict the Constitution, such as by imposing a poll tax to provide election services, then states can provide public services and impose taxes as they see fit to provide for them. Schools, police, firefighters, roads, and public parks are all examples of things that taxes pay for. Check with your state treasury or local authorities for more information about how your tax dollars are spent.

What should I do if I forgot to deduct state and local taxes on my tax return?

You generally have up to three years to amend your tax returns. All you have to do is file IRS Form 1040-X with the corrected information. Your three-year window of opportunity starts on the due date for the tax year you want to correct (generally April 15 of the following year) unless you filed for an extension of time to file that year, in which case the three-year window starts on the day the IRS receives your original return.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. IRS. "Topic No. 503 Deductible Taxes."

  2. IRS. "Topic No. 501 Should I Itemize?"

  3. IRS. "Rev. Proc. 2021-45." Page 14.

  4. IRS. "Rev. Proc. 2022-38." Page 13.

  5. Congress.gov. "H.R.1 - An Act To Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018."

  6. IRS. "Frequently Asked Questions: Individuals 2."

  7. Congressional Research Service. "The Alternative Minimum Tax for Individuals: In Brief." Page 3.

  8. IRS. "2021 Instructions for Schedule A."

  9. IRS. "Publication 555, Community Property."

  10. IRS. "Other Deduction Questions."

  11. IRS. "Instructions for Form 1040-X."

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