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August 25, 2021

Reviewing Benefits of the State and Local Tax Deduction by County in 2018

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As Congress considers repealing or making more generous the $10,000 state and local tax deduction cap in the budget reconciliation process, it is helpful to review how the state and local tax (SALT) deduction is taken by taxpayers across U.S. counties. Using 2018 data from the Internal Revenue Service, we can examine how much SALT taxpayers reported paying on their tax returns and how much SALT was deducted under its cap.

The benefits of the SALT deduction vary widely: the average across the 10 counties with the highest SALT deduction in 2018 was $2,600, compared to $404 for the country overall.

Taxpayers who itemize may deduct their state and local real estate and personal property taxes, as well as either their state and local income or general sales taxes. The Tax Cuts and Jobs Act (TCJA) limited the total amount of state and local taxes that can be deducted on federal tax returns to $10,000 for tax years 2018 through 2025. Additionally, the TCJA doubled the standard deduction, reducing the number of taxpayers who would benefit from itemizing their deductions, including the SALT deduction.

These maps are interactive. The first map shows the average amount of state and local taxes paid as reported on federal tax returns for each county, while the second shows the average amount of state and local taxes deducted by taxpayers in each county. Note: These interactive maps are more accessible when viewed on larger screens.

State and Local Taxes Paid Varies Across the U.S.

Value of State and Local Taxes Paid as Reported on Federal Tax Returns, 2018

State and Local Tax Deductions Are More Valuable in Areas with Higher Incomes

Value of State and Local Taxes Deducted on Federal Tax Returns, 2018

Source: Internal Revenue Service, SOI Tax Stats County Data 2018, https://www.irs.gov/statistics/soi-tax-stats-county-data-2018.

 

The measurement used for the first map is average SALT paid as reported per return, or the total value of all state and local taxes paid divided by the number of returns filed. State and local taxes paid may exceed $10,000, which means only a portion of SALT paid may be deducted under its cap.

The measurement used for the second map is average SALT deduction amount taken per return—in other words, the total value of all the deductions actually taken for state and local taxes, divided by the number of returns filed. These are the deductions claimed subject to the $10,000 SALT deduction cap.

Two factors drive the variation in SALT deductions regionally. The first is taxpayer income. High-income taxpayers are more likely to itemize, while low-income taxpayers are more likely to take the standard deduction. In 2018, about 11.4 percent of taxpayers itemized overall, while about 70 percent of those with adjusted gross incomes (AGIs) of $500,000 or more itemized, according to IRS data. This variation causes the SALT deduction to be most valuable in high-income counties despite the SALT deduction cap.

The second factor driving the regional variation in SALT deductions is variation in state and local tax burdens across the country. The greatest beneficiaries of the SALT deduction generally have high state and local taxes.

One way to consider how the SALT deduction cap impacts counties is to compare the top 10 counties for state and local taxes paid that are reported on federal tax returns with the SALT deductions actually claimed under the SALT cap.

The 10 counties with the most state and local taxes paid that were reported on federal tax returns are concentrated in California and New York, with one jurisdiction each from Colorado, Connecticut, New Jersey, and Virginia. These tend to be high-tax states and localities. SALT claimed in these jurisdictions was much lower than SALT reported because of the $10,000 cap on SALT deductions.

Top 10 Counties for State and Local Taxes Reported on Federal Tax Returns, 2018
County, State SALT Reported Per Filer SALT Deduction Claimed per Filer
New York County, NY $18,543.05 $1,560.02
Marin County, CA $15,851.31 $2,804.20
San Mateo County, CA $13,747.38 $2,198.73
Santa Clara County, CA $10.807.17 $2,061.66
Westchester County, NY $10,668.11 $2,013.69
San Francisco County, CA $10,130.36 $1,527.29
Fairfield County, CT $9,877.48 $1,995.12
Falls Church City, VA $8,315.89 $2,982.84
Pitkin County, CO $7,680.54 $1,438.14
Morris County, NJ $7,396.94 $2,167.18

Note: SALT reported per filer shows the amount of state and local taxes paid that was reported on federal tax returns, even if those taxes paid cannot be fully deducted due to the $10,000 SALT deduction cap. SALT deduction claimed per filer shows the amount of SALT deductions claimed on federal tax returns, subject to the $10,000 SALT deduction cap.

Source: Internal Revenue Service, “Statistics of Income Tax Stats – County Data 2018, 2018 (all States, does not include AGI),” https://www.irs.gov/statistics/soi-tax-stats-county-data-2018; and author’s calculations.

When looking at actual SALT deductions claimed, however, these high-tax jurisdictions see significantly smaller average SALT deductions due to the cap. The counties with the highest average SALT deductions claimed per filer are where high median household incomes tend to be along with higher state and local taxes.

A majority of the counties are in the Washington, D.C. metro area, for example, with some of the highest median household incomes in the country. While there may not be as many top earners in these areas as in places like San Francisco County or New York County, these localities tend to have a large number of filers who earn above-average incomes who itemize and deduct SALT.

Top 10 Counties for State and Local Tax Deductions Claimed, 2018
County, State SALT Reported Per Filer SALT Deduction Claimed Per Filer
Loudon County, VA $5,950.86 $3,040.73
Falls Church City, VA $8,315.89 $2,982.84
Marin County, CA $15,851.31 $2,804.20
Howard County, MD $6,206.44 $2,719.37
Charles County, MD $3,918.14 $2,588.10
Fairfax County, VA $5,856.39 $2,523.91
Calvert County, MD $4,120.95 $2,445.10
Fairfax City, VA $4,310.93 $2,390.54
Montgomery County, MD $6,236.71 $2,268.08
Contra Costa County, CA $6,977.19 $2,230.28

Note: This table shows the total amount of SALT deductions reported on federal tax returns and SALT actually claimed on federal tax returns, subject to the $10,000 SALT deduction cap.

Source: Internal Revenue Service, “Statistics of Income Tax Stats – County Data – 2018, 2018 (all States, does not include AGI),” https://www.irs.gov/statistics/soi-tax-stats-county-data-2018; and author’s calculations.

Finally, it is useful to look at SALT claimed per itemizing taxpayer, which excludes filers who took the standard deduction and did not deduct any SALT on their returns. The top 10 jurisdictions with SALT claimed per itemizer approach the $10,000 cap, though fall short of it as some itemizers do so for other items, like deductions for mortgage interest and charitable deductions. Comparing SALT reported per itemizer and SALT deductions actually claimed also shows how the $10,000 SALT cap has reduced the value of the deduction for itemizers in these counties.

Top 10 Counties for State and Local Tax Deductions Claimed per Itemizing Taxpayer, 2018
County, State SALT Reported Per Itemizing Filer SALT Deduction Claimed Per Itemizing Filer
Nassau County, NY $30,227.21 $9,023.79
Santa Clara County, CA $46,817.53 $8,931.28
Morris County, NJ $30,374.25 $8,899.15
Suffolk County, NY $22,656.12 $8,897.54
Bergen County, NJ $30,136.71 $8,889.14
Fairfield County, CT $43,933.91 $8,874.05
Falls Church City, VA $24,738.91 $8,873.64
Loudoun County, VA $17,324.87 $8,852.54
Putnam County, NY $21,500.86 $8,847.71
San Mateo County, CA $55,163.33 $8,822.68

Note: This table shows the total amount of SALT deductions reported on federal tax returns and SALT actually claimed on federal tax returns for itemizing taxpayers, subject to the $10,000 SALT deduction cap.

Source: Internal Revenue Service, “Statistics of Income Tax Stats – County Data – 2018, 2018 (all States, does not include AGI),” https://www.irs.gov/statistics/soi-tax-stats-county-data-2018; and author’s calculations.

It is important to understand how the SALT deduction’s benefits have changed since the SALT cap was put into place in 2018 before repealing the cap or making the deduction more generous. Doing so would disproportionately benefit higher earners, making the tax code more regressive.

Banner image attribution: yurolaitsalbert, Adobe Stock

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A tax deduction is a provision that reduces taxable income. A standard deduction is a single deduction at a fixed amount. Itemized deductions are popular among higher-income taxpayers who often have significant deductible expenses, such as state/local taxes paid, mortgage interest, and charitable contributions.

The standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act as an incentive for taxpayers not to itemize deductions when filing their federal income taxes.

The Tax Cuts and Jobs Act in 2017 overhauled the federal tax code by reforming individual and business taxes. It was pro-growth reform, significantly lowering marginal tax rates and cost of capital. We estimated it reduced federal revenue by $1.47 trillion over 10 years before accounting for economic growth.