SALT Tax Reform

A bipartisan coalition in the House of Representatives has renewed its push to lift the $10,000 cap on deducting state and local taxes (SALT) from federal tax returns.

The so-called cap was enacted in 2017 as part of then-President Donald Trump’s federal tax cuts, the Tax Cut and Jobs Act (TCJA). It’s mostly impacted higher-income property owners in states such as California, New Jersey, and New York.

The SALT Caucus was established to advocate for a repeal of the cap. Originally formed in 2021, the group of nearly three dozen U.S. Representatives has added new names from both sides of the aisle in its efforts to lift the cap. They include Democrat of New York Pat Ryan and New York Republicans Mike Lawler, Marc Molinaro, Anthony D’Esposito, and Nick LaLota.

“This policy violates 150 years of precedent in federal tax law, disproportionately harms New York, and unfairly imposes a marriage penalty on couples filing jointly by having them face the same $10,000 cap as individuals,” said Ryan in a statement. “According to research by the National Association of Realtors, in New York, 35% of taxpayers claimed the SALT deduction in 2016 before it was capped. Raising the SALT cap would therefore lower taxes for tens of thousands of New Yorkers.”

The group is led by New York Republican Andrew Garbarino along with fellow Republican Young Kim of California and Democrats Josh Gottheimer of New Jersey and Anna G. Eshoo of California. “The cap on the SALT deduction is an attack on the middle class, raising taxes on 200,000 families in my Congressional District,” said Eshoo, SALT Caucus Co-Chair. “Prior to the 2017 tax law, my constituents claimed an average deduction of $63,083, and as a co-chair of the bipartisan SALT Caucus, I’m firmly committed to restoring this vital deduction for Californians.”

Gottheimer said the caucus would consider two outcomes: letting the cap expire or negotiating from a position of power. “We’re not going to be a cheap date to our negotiators, so we’re not going to settle for a low-bid offer,” he said. “So, if you want to talk, this is the caucus to talk to get this done, to restore SALT and make life more affordable.”

Whether the group can come together on a specific measure remains to be seen as several members have already come out with different proposals to address the cap.

Rep. Katie Porter, Democrat of California trumpeted her efforts in the last Congress on a “sensible limit” that would increase federal revenue over the long term. Porter co-sponsored legislation that would eliminate the cap for households making up to $400,000, then reinstate the limit on a sliding scale beginning at $60,000 and ultimately phasing out completely for households earning at least $1 million.

California Republican Mike Garcia is promoting a measure that would eliminate the SALT cap entirely. “I think we need to hold this ground very firm, not give into negotiations unless it’s a straight-stock removal of this SALT cap,” he said.

Representatives Mikie Sherrill, Democrat of New Jersey, and New York Republican Mike Lawler have a bill to lift the SALT cap to $100,000 for individuals and $200,000 for married couples filing taxes jointly through 2025, before it expires.

IRS delays Form 1099-K $600 reporting threshold

The IRS announced that calendar year 2022 will be treated as a transition year for the reduced reporting threshold of more than $600 that was to go into effect for information returns due in 2023. See Notice 2023-10PDF. Pursuant to Notice 2023-10, for calendar year 2022, third party settlement organizations who issue Forms 1099-K, Payment Card and Third Party Network Transactions, are only required to report transactions where gross payments exceed $20,000 and there are more than 200 transactions.

Ohio Department of Taxation

The Ohio Department of Taxation on Jan. 20 released a third round of guidance for pass-through entities (PTEs) who “elect” to be subject to a new entity-level tax in response to the federal $10,000 SALT deduction cap limit placed on individuals.

The ODT created the new Form IT 4738 after the enactment of OSCPA-supported Senate Bill 246, also known as Ohio’s version of the SALT cap deduction parity/workaround.  The guidance includes a final version of the new IT 4738 form and instructions, a new payment coupon, and an additional 13 FAQs bringing the total to 33 FAQs.  All of the prior guidance also can be found by clicking here.

S.B. 246 authorizes PTE owners to claim a refundable credit against the owner’s Ohio income tax liability equal to the owner’s proportionate share of the tax paid by the PTE.  IRS Notice 2020-75 permitted states to enact legislation to clarify that taxes paid by a PTE do not count towards an owner’s $10,000 SALT deduction cap limitation for federal income tax purposes.  Twenty-nine states have addressed this issue, and three states have introduced bills. See the map of states with pending or enacted legislation.

Although ODT has been releasing guidance and adding FAQs, S.B. 246 requires ODT to enact rules regarding multi-tiered entities, including partnerships.  Those rules have not been adopted yet.

***(F) The tax commissioner shall adopt rules to administer the tax levied under this section. Such rules shall include a description of how the adjustments to income under divisions (A)(36) and (S)(15) of section 5747.01 of the Revised Code and the credit under section 5747.39 of the Revised Code apply to direct or indirect owners of an electing pass-through entity based on various ownership structures. Any rule adopted under this section is not a regulatory restriction for the purpose of section 121.95 of the Revised Code.****

Finally, OSCPA-supported Senate Bill 18 is now in effect, which lowers Ohio’s withholding rates on nonresident investors in Ohio-operating PTEs. The effective date of the withholding rate change to 3% applies to PTE’s taxable years beginning on or after Jan. 1, 2023. Prior law required these entities to withhold on behalf of nonresident individuals at 5% and other PTEs (nonindividuals) at 8.5%.

Change to Ohio 529 plan tax deduction

Starting in 2023, Ohio residents who contribute to any 529 plan (not just the Ohio 529 plan) are allowed up to $4,000 per beneficiary per year to be deductible in computing Ohio taxable income. This change now allows  Ohio based taxpayers to receive a tax deduction for contributions made to a 529 provider in ANY state in the US.  The objective of this act is to provide the same tax benefit to all families saving for college in Ohio. Currently, only families investing in Ohio’s 529 college savings plan receive the $4,000 deduction against their taxable income. The underlying goal is to encourage all Ohio taxpayers to invest in a 529 college savings account to plan for the cost of going to college. This act extends the same tax benefit to all Ohio families paying state income taxes regardless of whether they invest in Ohio’s plan or another state’s plan that may be a better option for their family needs. This act also provides competition for Ohio’s college savings plan to ensure families investing in Ohio’s plan obtain the highest possible return on their investment at the lowest possible cost associated with the plan.