Taxpayers who pay more than $10,000 in state and local taxes, the new limit on that federal deduction, should not count on relief any time soon. Even if their state approves a workaround for the so-called SALT deduction limits that were enacted by new federal tax legislation, there are questions about implementation.
Jared Walczak, a senior policy analyst at the conservative Tax Foundation, warns that “these avoidance schemes” may increase an individual’s total tax liability and could be subject to an audit.
Howard Gleckman, a senior fellow at the the Urban-Brookings Tax Policy Center, doesn’t expect many taxpayers will take advantage of these workarounds until the IRS clarifies that they’re legal.
In addition, says Gleckman, many taxpayers will choose to take the standard deduction, which doubled under the new tax legislation, rather than itemize deductions and therefore won’t need a workaround.
To date only New York state has signed legislation to help offset the new SALT deduction limits. The New Jersey Legislature passed a similar type of bill, but the governor is asking for a slight adjustment before signing it, and in California only one branch of the State Legislature has passed an offset bill.
The New York law includes a series of reforms to the state tax code that capitalize on the facts that charitable contributions from individuals and payroll taxes paid by employers are both fully deductible from federal taxes. Participation in the plan by employers and local governments as well as taxpayers would be voluntary.