January 3, 2024

Which States Allow Deductions for Federal Income Taxes Paid?


Three states allow an unusual income tax deduction for federal income taxes paid. Missouri and Oregon limit these deductions by capping and/or phasing out the deduction, while Alabama, offers what amounts to an unlimited deduction. These deductions are detrimental to state income tax systems on many fronts, as they offer large benefits to high-income earners and undercut the adequacy and stability of state income tax systems.