States That Allow You to Deduct Federal Income Taxes

Only five of the 41 states that impose a tax on income allow taxpayers to claim a deduction for their federal income taxes. These states are Alabama, Iowa, Missouri, Montana, and Oregon. Louisiana removed the deduction starting tax year 2022, but the state allowed for the possibility in the future. Some of them are more generous with this tax provision than others.

Alabama's Federal Income Tax Deduction

Alabama is one of two states that allow you to fully deduct your federal income taxes.

The state allows both residents and non-residents to claim a deduction for any federal income tax you pay. If you're a resident, you can deduct your full federal tax liability. If you're a non-resident, you can only claim the deduction for any taxes on the income you earned in Alabama.

Iowa's Federal Income Tax Deduction

Iowa allows for a deduction of all federal taxes actually paid in cash during the year. In tax terms, that includes checks you wrote, debits from your bank account, deferred refunds, and paycheck withholdings.

The deduction is equal to the amount of the federal taxes withheld from your paycheck during the tax year, plus any estimated payments you might have made during the year and any federal taxes you paid when you filed your federal tax return.

You would be deducting taxes paid with your prior-year federal return, since that return would have been filed during the current calendar year. You must deduct the amount of any federal refund received.

Missouri's Federal Income Tax Deduction

Missouri allows a deduction for your federal income tax liability resulting from your federal tax return, but any alternative minimum tax (AMT) you're liable for must be subtracted. You must also subtract the amount of certain refundable credits you received.

The deduction you can take is the amount of federal tax you actually paid according to your federal Form 1040. You must file a federal tax return to find this amount, rather than using the amount of federal tax withheld by your employer on your W-2.

Montana's Federal Income Tax Deduction

Montana lets you deduct your federal taxes paid during the year, up to a certain amount. The deduction is equal to federal taxes withheld from your paycheck during the year, plus any estimated payments you made during the year and any federal taxes paid with your prior year’s tax return.

The amount of the deduction is limited to $5,000 for single filers, and $10,000 for married taxpayers who file jointly. You must itemize deductions on your state tax return to claim your federal income tax payments. 

Oregon's Federal Income Tax Deduction

Oregon allows a deduction for your total federal tax liability after adjusting for certain federal tax credits. The maximum deduction you can take in tax year 2022 is $7,250.

The deduction is phased out for higher earners. Your deduction will be $5,800 if you're a single taxpayer and your AGI was at least $125,000 but less than $130,000 in 2022. You can't claim the deduction at all if your income was $145,000 or more.

The maximum deduction for married taxpayers filing jointly is $5,800 with an AGI of $250,000 but less than $260,000. The deduction phases out completely at incomes of $290,000 or more in 2022.

Louisiana's Federal Income Tax Deduction Repealed

Louisiana's mandated federal income tax deduction was repealed by the legislature in December 2021. So, if you're a Louisiana resident, you can no longer take a federal income tax deduction on your state tax return. However, the state maintained the ability to allow you to deduct the value of federal income tax that you've paid if the state legislature allows it for the year.

Filing Your State Income Tax Return

Most states, as well as the federal government, prefer that you prepare and file your return electronically. You'll most likely have a more accurate return if you use a software program. You'll get your refund sooner—if you're entitled to one—when you e-file and choose direct deposit.

Many states provide free software programs on their websites. Purchased tax software programs like TurboTax usually include state tax return preparation for most, but not all, states. You might have to pay extra to file a state return with your tax prep software.

Frequently Asked Questions