Who Benefits from the State and Local Tax Deduction?

October 5, 2018

The House of Representatives passed a bill last week that would make permanent the individual provisions of the Tax Cuts and Jobs Act (TCJA). One such provision is the $10,000 cap on the state and local tax (SALT) deduction. The benefits of the SALT deduction overwhelmingly go to high-income taxpayers, particularly those in high-income and high-tax states. In 2016, 77 percent of the benefit of the SALT deduction accrued to those with incomes above $100,000; only 6.6 percent went to taxpayers with incomes below $50,000.

The value of the SALT deduction as a percentage of adjusted gross income (AGI) increases with a taxpayer’s income. In 2016, taxpayers with AGIs between $0 and $24,999 claimed, in aggregate, SALT deductions worth only 2.3 percent of AGI, whereas taxpayers with incomes of $500,000 or higher claimed deductions worth 7.7 percent of AGI. AGI is used to calculate taxable income; wealthier taxpayers, then, enjoy a SALT deduction worth a greater percentage of their taxable income.

Table 1: Value by Income of the SALT Deduction as a Percentage of AGI
AGI State and Local Deduction Value as Percent of AGI Percentage of Filers Itemizing

Source: Internal Revenue Service, “Statistics of Income Tax Stats, Tax Year 2016: Historic Table 2, ‘Total File, All States,’” https://www.irs.gov/statistics/soi-tax-stats-historic-table-2, and author’s calculations.

$0 – $24,999 2.3% 5.9%
$25,000 – $49,999 2.0% 19.1%
$50,000 – $99,999 3.8% 44.3%
$100,000 – $499,999 6.7% 80.2%
$500,000+ 7.7% 93.1%

Income is also positively correlated with the percentage of filers who itemize deductions instead of taking the standard deduction. Only 5.9 percent of taxpayers with AGIs between $0 and $24,999 itemized in 2016, compared to 93.1 percent of taxpayers with incomes of $500,000 or more. The number of itemizers is projected to decrease in 2018 as a result of the TCJA, however, as discussed below.

The SALT deduction also generally benefits states that have relatively large numbers of high-income taxpayers and high-tax environments. In New York, the deduction was worth 9.4 percent of AGI, while the average across all states and the District of Columbia was 4.6 percent. Just six states–California, New York, New Jersey, Illinois, Texas, and Pennsylvania–claimed more than half (51.6 percent) of the value of all SALT deductions nationwide. California alone was responsible for 20.7 percent of all SALT deductions.  In summary, the benefits are highly concentrated in wealthy regions and toward upper-income taxpayers.

Table 2: Value by State of the SALT Deduction as a Percentage of AGI

Source: Internal Revenue Service, “Statistics of Income Tax Stats, Tax Year 2016: Historic Table 2, ‘Total File, All States,'” https://www.irs.gov/statistics/soi-tax-stats-historic-table-2, and author’s calculations/.

  State Deduction as Percent of AGI State Share AGI Per Filer Percent of Itemizers

Top States

New York 9.40% 13.10% $80,260 34.90%
New Jersey 8.80% 5.90% $84,472 41.80%
Connecticut 8.50% 2.50% $92,782 41.60%
California 8.10% 20.70% $79,332 35.20%
Maryland 7.90% 3.20% $76,069 46.40%
Oregon 7.20% 1.60% $65,038 37.00%
District of Columbia 7.10% 0.40% $93,023 40.20%
Massachusetts 6.40% 3.50% $88,393 37.40%
Minnesota 6.30% 2.20% $71,467 35.40%
Rhode Island 6.10% 0.40% $64,162 33.20%

Bottom States

Mississippi 2.90% 0.30% $48,362 24.10%
Texas 2.80% 4.00% $64,335 24.20%
Louisiana 2.80% 0.60% $56,886 24.60%
Alabama 2.70% 0.60% $55,598 26.40%
Florida 2.60% 2.80% $61,988 23.90%
Nevada 2.20% 0.40% $64,588 26.00%
Tennessee 1.90% 0.60% $58,457 20.30%
South Dakota 1.80% 0.10% $61,450 17.90%
Wyoming 1.80% 0.10% $69,484 22.20%
North Dakota 1.80% 0.10% $66,250 19.10%

The impact of the SALT deduction will change somewhat, however, as a result of the TCJA. The Joint Committee on Taxation estimates that the number of taxpayers who itemize instead of taking the standard deduction will fall from 46.5 million in 2017 to just over 18 million in 2018. Behind the decrease in itemizers and increase in taxpayers taking the standard deduction is the TCJA’s near-doubling of the standard deduction, which limits the value of itemized deductions, such as SALT. The SALT deduction, however, will continue to be important for those who itemize—which is to say, for wealthier taxpayers.If Congress does not make permanent the individual tax provisions, the SALT cap will expire as scheduled after 2025. With or without the cap, however, wealthy taxpayers will continue to be the greatest beneficiaries of the SALT deduction.

Table 3: SALT Deduction Shares and Value by State
State AGI Per Filer Percent of Itemizers Dehuction as percent of AGI State Share

Source: Internal Revenue Service, “Statistics of Income Tax Stats, Tax Year 2016: Historic Table 2, ‘Total File, All States,’” https://www.irs.gov/statistics/soi-tax-stats-historic-table-2, and author’s calculations/. Includes District of Columbia.

Alabama $55,598 26.40% 2.70% 0.60%
Alaska $67,590 23.00% 1.60% 0.10%
Arizona $60,362 29.40% 3.50% 1.10%
Arkansas $55,608 22.70% 3.50% 0.40%
California $79,332 35.20% 8.10% 20.70%
Colorado $73,396 33.40% 4.00% 1.40%
Connecticut $92,782 41.60% 8.50% 2.50%
Delaware $64,391 32.70% 4.70% 0.20%
District of Columbia $93,023 40.20% 7.10% 0.40%
Florida $61,988 23.90% 2.60% 2.80%
Georgia $60,798 33.40% 4.80% 2.40%
Hawaii $62,491 30.00% 4.70% 0.40%
Idaho $56,357 28.90% 4.70% 0.40%
Illinois $71,626 31.60% 5.30% 4.20%
Indiana $57,155 23.10% 3.50% 1.10%
Iowa $60,974 30.20% 4.80% 0.80%
Kansas $62,237 25.90% 3.80% 0.60%
Kentucky $54,460 26.50% 4.70% 0.90%
Louisiana $56,886 24.60% 2.80% 0.60%
Maine $56,949 27.50% 5.30% 0.40%
Maryland $76,069 46.40% 7.90% 3.20%
Massachusetts $88,393 37.40% 6.40% 3.50%
Michigan $60,732 27.10% 4.30% 2.20%
Minnesota $71,467 35.40% 6.30% 2.20%
Mississippi $48,362 24.10% 2.90% 0.30%
Missouri $59,346 26.60% 4.30% 1.30%
Montana $55,890 29.10% 4.70% 0.20%
Nebraska $61,478 28.00% 4.80% 0.50%
Nevada $64,588 26.00% 2.20% 0.40%
New Hampshire $73,876 31.80% 4.10% 0.40%
New Jersey $84,472 41.80% 8.80% 5.90%
New Mexico $51,293 22.80% 3.10% 0.30%
New York $80,260 34.90% 9.40% 13.10%
North Carolina $60,061 29.60% 4.60% 2.30%
North Dakota $66,250 19.10% 1.80% 0.10%
Ohio $58,421 26.30% 4.50% 2.70%
Oklahoma $57,109 23.80% 3.20% 0.50%
Oregon $65,038 37.00% 7.20% 1.60%
Pennsylvania $65,408 29.10% 5.00% 3.70%
Rhode Island $64,162 33.20% 6.10% 0.40%
South Carolina $56,473 28.00% 4.20% 0.90%
South Dakota $61,450 17.90% 1.80% 0.10%
Tennessee $58,457 20.30% 1.90% 0.60%
Texas $64,335 24.20% 2.80% 4.00%
Utah $64,948 36.10% 4.60% 0.70%
Vermont $59,260 27.80% 5.80% 0.20%
Virginia $74,693 37.80% 5.50% 2.90%
Washington $79,332 30.80% 2.90% 1.50%
West Virginia $50,050 17.30% 3.10% 0.20%
Wisconsin $62,594 31.60% 5.80% 1.90%
Wyoming $69,484 22.20% 1.80% 0.10%

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