States That Allow You to Deduct Federal Income Taxes

Deducting Federal Income Taxes from Your State Taxes

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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.

Key Takeaways

  • Alabama lets residents deduct all of the federal income tax they pay.
  • Iowa allows for a deduction based on the amount of income tax withheld on your paycheck plus any estimated payments you made and minus your federal refund.
  • In Missouri, you can deduct the taxes you actually paid minus any alternative minimum tax payments and refundable credits you received.
  • Montana caps your federal income tax deduction at $5,000 for single filers and $10,00 for those filing jointly with a spouse.
  • Oregon's deduction is capped at $7,250 for tax year 2022 and is based on your income.

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.


Iowa tax law doesn't allow you to deduct any payments resulting from the Additional Medicare Tax.

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.


You'll have to adjust for any federal tax refunds you received during the year in states where the deduction amount is equal to federal taxes actually paid in cash.

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

Which states can I deduct my federal income taxes?

You can deduct your federal income taxes in five states: Alabama, Iowa, Missouri, Montana, and Oregon. Louisana repealed its federal income tax deduction but allowed lawmakers to implement it on a year-to-year basis.

Can state income taxes be deducted from federal income taxes?

In some cases, you can deduct up to $10,000 in state and local income, property, and sales taxes. However, you have to itemize your deductions to take advantage of this tax break.

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  1. Alabama Legislature. "AMENDMENT 225 RATIFIED: Deduction of Federal Income Tax From Gross Income When Computing State Income Tax."

  2. The Iowa Legislature. "701—41.3 (422) Federal Income Tax Deduction and Federal Refund," Pages 1-2.

  3. Missouri Department of Revenue. "Federal Income Tax Deduction."

  4. Montana Legislative Services. "Individual Income Tax Overview." Page 4.

  5. Montana Code Annotated. "Deductions Allowed In Computing Net Income."

  6. Oregon Department of Revenue. "Publication OR-17 Individual Income Tax Guide," Pages 71-73.

  7. Louisiana Department of Revenue. "Revenue Information Bulletin No. 21-032 December 30, 2021 Individual Income Tax Louisiana Individual Income Tax Reform Effective for 2022 and Future Tax Years."

  8. IRS. "Topic No. 503 Deductible Taxes."

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