If you itemize deductions on your federal return, you may be able to deduct state and local taxes (SALT) paid during the year. For 2025, the SALT deduction cap has been increased to $40,000 for most filers under the One Big Beautiful Bill Act. If you're married filing separately, the cap is $20,000.
Important: If your total deductible state and local taxes exceed the cap, the excess will still be listed on Schedule A, but Line 7 will reflect no more than the allowed limit.
Deductible SALT Items Include:
- State and local income taxes paid in 2025, including:
- Taxes paid with your prior year’s state or local return (excluding penalties and interest).
- Estimated tax payments made during 2025.
- Any refund from a prior year that you chose to apply to 2025 estimated taxes.
- Mandatory contributions to specific state programs:
- Disability benefit funds in California, New Jersey, New York, Rhode Island, and Washington.
- State unemployment insurance funds in Alaska, California, New Jersey, and Pennsylvania.
- State family leave programs, such as:
- New Jersey Family Leave Insurance (FLI)
- California Paid Family Leave (PFL)
- Other state PFML programs (e.g., Connecticut, Oregon, Washington, Maryland, Maine)
These contributions are treated as state income taxes and may be deductible if you itemize your deductions.
Phase-Out for High-Income Taxpayers
If your Modified Adjusted Gross Income (MAGI) exceeds:
- $500,000 (single or married filing jointly)
- $250,000 (married filing separately)
Your SALT deduction begins to phase out by 30% of the excess income. However, your deduction cannot fall below the old cap of $10,000 (or $5,000 for MFS).