How to Deduct State Income Tax

You have to use Form 1040 to deduct state income taxes.

You have to use Form 1040 to deduct state income taxes.

When you're filing your taxes, Uncle Sam lets you take a deduction for the state income taxes that you paid during the year, but only if you itemize your deductions. Depending on your state income taxes and your other itemized deductions, such as charitable giving or mortgage interest, it might be worth your time to file Schedule A so you can claim the tax break. To claim the deduction, you'll need to know how much you paid (or had refunded) from your prior year's tax return and how much the state took out of your paychecks during the year.

Calculate your state income taxes paid during the calendar year. This includes any estimated payments made during the year and your taxes paid when you filed your return the previous year. If you received a refund, you have to subtract that from your taxes paid. For example, if you received a $100 state tax refund when you filed and had $1,900 withheld from your paychecks during the year, you would be entitled to an $1,800 deduction for state and local income taxes.

Check box 5a on Schedule A to indicate you are taking a deduction for state and local income taxes rather than state and local sales taxes.

Enter the amount of your state and local income taxes paid during the year on line 5 of IRS Schedule A. In this example, enter $1,800. This amount is added with your other deductible taxes and reported on line 9 of Schedule A.

Total your itemized deductions and report the sum on line 27 of Schedule A and line 40 of your Form 1040 tax return, replacing your standard deduction. This amount is subtracted from your taxable income.

Items you will need

  • IRS Form 1040
  • IRS Schedule A

Photo Credits

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