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Federal deduction for state and local sales taxes, part 2

In part one of this post, we noted that taxpayers in Texas may be adversely affected by the failure of Congress to continue a long-standing tax break for the payment of state and local sales taxes.

As we explained in our January 9 post, Congress has historically allowed a deduction on federal taxes for state and local taxes for taxpayers in states that do not have income taxes.

In this part of the post, we will discuss what the absence of the deduction means for Texas taxpayers. We will also touch on the prospects for the restoration of that deduction.

There is no doubt that the deduction is important for Texas taxpayers. According to national data from the Pew Charitable Trusts, Texas ranked third among the states in 2011 for use of the deduction on federal taxes for the payment of state and local taxes.

Slightly more than 20 percent of taxpayers in the Lone Star State took the deduction on their federal taxes, according to the Pew data.

Unless Congress acts to restore the deduction, Texans will face higher federal taxes starting next year. Their taxes will be higher because the deduction they once were able to use for the payment of state and local taxes will no longer apply after this year.

For an individual taxpayer, the amount of money is not huge, but it is still significant. The average deduction for Texas taxpayers on their federal taxes is $383.

To be sure, it is possible that Congress will retroactively restore the deduction. For the time being, however, the deep divides in Congress could keep it from addressing this particular tax issue for a long time to come.

Source: Star-Telegram, "Tax time may soon be more costly for Texans," Anna M. Tinsely, Jan. 4, 2014

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