Lawmakers Form Caucus To Change Or End State And Local Tax Deduction Cap

According to Roll Call,  a bipartisan group of lawmakers in the U.S. House of Representatives has relaunched that body’s SALT Caucus. The group’s mission is to eliminate the $10,000 limit on deducting state and local taxes (SALT) that was put in place as part of the 2017 federal tax reform bill. The provision, which mostly impacts individuals in high-income states and small businesses that file their taxes through the individual tax system, is set to sunset after 2025.

Members of the SALT Caucus have put forward several proposals to deal with the tax, including:

• Raising the SALT cap to $100,000 for individuals and $200,000 for married couples filing taxes jointly through 2025;
• Eliminating the cap for households making up to $400,000 and then reinstating the limit on a sliding scale beginning at $60,000 and ultimately phasing out completely for households earning at least $1 million; or
• Scraping the SALT cap entirely.

In 2020, the U.S. Department of the Treasury put into place guidance that could allow pass-through businesses in some states to avoid the federal $10,000 cap on state and local tax (SALT) deductions. Under that guidance, owners of S corporations and other pass-throughs could avoid the cap by paying those taxes through the business entity – if their state permitted that mechanism.

After that guidance was issued, more than half of U.S. states passed legislation to restore the full SALT deduction by allowing S corporations and partnerships to elect to pay their taxes at the entity level. According to the S-Corp Association, if laws like these were enacted across the country, more than three million pass-through businesses would receive more than $6 billion in annual tax relief, all at no cost to states.

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