New Tax Break – Married Couples To Receive Thousands With Raised Salt Deduction Cap

The tax bill proposed this week includes a change to the cap on state and local tax (SALT) deductions that would benefit some married couples. The bill would raise the current $10,000 cap on SALT deductions to $20,000 for married couples who file jointly.

This change aims to provide tax relief for middle-class families in states with high income and property taxes. Opponents argue it disproportionately benefits higher-income households. The impact on state budgets also remains unclear, as the change could reduce federal funding. With negotiations ongoing, the ultimate fate of the SALT deduction cap hangs in the balance.

Overview of the Proposed Tax Bill’s Changes to SALT Deductions

The proposed tax bill would temporarily increase the cap on state and local tax (SALT) deductions for married couples filing jointly. According to extracts from documents discussing the bill, the increase would be valid for tax years beginning after December 31, 2022, and before January 1, 2024.

The current SALT deduction cap of $10,000 was implemented as part of the 2017 tax overhaul. Lawmakers from high-tax states have argued this disproportionately impacts their constituents. To address these concerns, the new bill would raise the SALT cap for joint filers to $20,000.

Republicans Seek To Block Legislative Action

Four Republican representatives from New York threatened to block legislative action this week unless changes were made to SALT deductions. Their actions led to the concession of raising the joint filing SALT cap, allowing the $78 billion Tax Relief for American Families and Workers Act to pass the House on Wednesday.

The representatives see the increase as fulfilling promises made to provide tax relief for families. However, the fate of the bill in the Senate remains unclear. Comments from the representatives suggest they will continue advocating for eliminating the “marriage penalty” that results from the current SALT cap.

How the New Bill Would Raise the SALT Cap for Married Filers

The Tax Relief for American Families and Workers Act proposes increasing the cap on the deduction for state and local taxes (SALT) for married couples filing jointly. According to sources cited by various media outlets, the bill allows for raising the SALT deduction limit from $10,000 to $20,000 for joint filers, amounting to tax savings of up to $10,000 per couple.

The proposed bill comes in response to pressure from Republican representatives of high-tax states like New York, where residents have been disproportionately impacted by the SALT cap imposed in the 2017 tax overhaul.

Uncertainty from The Senate

The fate of the bill in the Senate remains uncertain. The Senate would need to approve the bill for the proposed changes to take effect. Some Senators from low-tax states may oppose raising the SALT cap, as it could be seen as subsidizing high-tax states.

If passed into law, the Tax Relief for American Families and Workers Act would provide substantial tax relief for middle-income married couples in states with high income and property taxes. For families earning $150,000 to $500,000 per year, increasing the SALT deduction cap from $10,000 to $20,000 could mean annual tax savings of $2,000 to $10,000.

Estimated Impact on Tax Liability for Married Couples

The proposed amendment to increase the SALT deduction cap for joint tax filers is anticipated to reduce the tax burden for many married couples. This change is estimated to save the average married couple filing jointly in New York, New Jersey, California, and other states with high state and local taxes thousands of dollars per year.

The impact would be even greater for married couples in higher tax brackets with larger mortgages and property tax bills. According to analyses by tax experts and policy groups, the average tax cut for married joint filers in New York and New Jersey could be $3,000 to $5,000 or more per year.

Other Notable Provisions in the Tax Bill

Among the notable provisions included in the proposed tax bill are several changes aimed at providing relief for married couples filing jointly. According to extracts from documents obtained by various media outlets, the bill allows for an increase in the deduction cap for state and local taxes (SALT) for joint filers from $10,000 to $20,000.

Some experts view this as a limited, temporary concession. As Weiss wrote, “It is a very limited, temporary deduction increase for married couples.” However, the increase could still provide thousands in tax relief for affected households.

Satisfaction With The Proposed Change

In statements on social media, Representatives Nick LaLota and Mike Lawler, two members of the group that pushed for SALT reform, expressed satisfaction with the proposed change but indicated the fight is not over. LaLota said he “promised Long Islanders I would fight tooth and nail for SALT relief and vote against this year’s tax bill if it didn’t have a reasonable amount of SALT in it.”

The bill also extends certain business tax credits and deductions through 2025. According to reports, the extension covers “the tax relief for American Families and Workers Act” passed in 2022. The act expanded the child tax credit and restored select business tax breaks.

What Happens Next – Bill’s Chances of Passing

Passage of the SALT Marriage Penalty Elimination Act would deliver on the promises of its co-sponsors to push for pro-family, tax-cutting legislation. As Rep. Mike Lawler said, “The hard-working taxpayers of #NY17 deserves nothing less.“

The success or failure of the SALT Marriage Penalty Elimination Act will depend on building consensus around a compromise that balances the interests of taxpayers in high-cost, high-tax areas with concerns over increasing the deficit.

Strategies to Reduce Your 2022 Tax Bill Under Current Law

To maximize tax savings for the 2022 tax year, married couples should explore all available deductions and credits. This change provides married taxpayers the opportunity to deduct an additional $10,000 in state and local taxes paid in 2022, including property taxes and state income taxes or sales taxes.

Taxpayers who pay high property taxes and state income taxes in states like New York, New Jersey, and California stand to benefit the most from this amendment. However, this increase in the SALT cap is only valid for tax years 2022 and 2023.

What to Do if SALT Deduction Cap Is Raised for 2023

If the proposed amendment to increase the SALT deduction cap for married couples filing jointly passes, taxpayers will need to take certain actions. Taxpayers should first check if they qualify for the increased deduction.

Come tax season in 2024, married couples who qualify for the increased SALT cap should report total state and local taxes paid on their federal tax return to claim the deduction. The IRS will review returns to verify taxpayers meet the income requirement and do not exceed the $20,000 limit.