States That Allow You to Deduct Federal Income Taxes

Deducting Federal Income Taxes From Your State Taxes

Tax Time
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You can deduct state taxes on your federal income tax return.  And most states allow you to deduct taxes paid to other states. It stands to reason that you should be able to deduct your federal taxes on your state tax return as well. But out of 41 states with income taxes, only six states allow taxpayers to deduct their federal income taxes.

States That Allow Taxpayers to Deduct Their Federal Income Taxes

  • Alabama allows a deduction for your total federal tax liability from your federal return minus any federal tax credits you claimed. 
    • Iowa allows for a deduction of all federal taxes actually paid in cash during the year.  The deduction is equal to federal taxes withheld from your paycheck during the year, plus any estimated payments made during the year, plus any federal taxes paid with your tax return during the year.  Note that this means you would be deducting taxes paid with your prior year federal return since that return would have been filed during the current calendar year. 
    • Louisiana’s deduction for federal taxes is equal to your total federal income tax liability on your return after subtracting any non-refundable tax credits (equal to line 55 on Form 1040).
    • Missouri allows a deduction for your federal income tax liability from your federal tax return.  Any Alternative Minimum Tax (AMT) must be subtracted as well as any the amount of certain refundable credits you received.  The amount of the deduction is limited to $5,000 for single filers and $10,000 for married filing jointly.
      • Montana allows for a deduction of all federal taxes actually paid in cash during the year. The deduction is equal to federal taxes withheld from your paycheck during the year, plus any estimated payments made during the year, plus any federal taxes paid with your prior year’s tax return during the year.  The amount of the deduction is limited to $5,000 for single filers and $10,000 for married filing jointly.
        • Oregon allows a deduction for your total federal tax liability from your federal return after adjusting for certain federal tax credits.  The amount of the deduction is limited to $5,850. 

        Things to Consider

        Keep in mind that in states where the deduction amount is equal to federal taxes actually paid in cash (i.e. paycheck with holdings), you will have to adjust for federal tax refunds you have received during the year. 

        For states that use your tax liability from your federal return, adjustments to the deduction may be needed if you amend your federal tax return later. 

        Filing Your State Income Tax Return

        Preparing and filing your return electronically is the preferred method for tax compliance. You will have a more accurate return if you use a software program and you will get your refund faster if you e-file and choose direct deposit.  Many states have lists of free software programs you can use on their websites.  Purchased tax software programs like Turbo Tax usually include state tax return preparation for most, but usually not all, states.  Check the list of available states before you buy. 

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