How to Deduct Local Earned Income Tax
The Internal Revenue Service allows a tax deduction for the amount that you pay during the year for local income taxes. The IRS categorizes the deduction as an itemized deduction, meaning you must file your taxes using form 1040 and complete Schedule A, a list of your itemized deductions. In order to claim the deduction, you need to have your W-2 forms and records of any estimated taxes or tax payments you have made to determine how large of a deduction you can take.
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Instructions
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1
Determine the amount of local income taxes you withheld from your paychecks during the year by checking your W-2 forms. Local income tax withheld should be listed in box 19.
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2
Determine the amount you paid during the year for local income taxes for a previous year. For example, if in 2009 you paid $600 in local taxes for your 2008 tax bill, you can include that amount.
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3
Calculate the amount, if any, of local income tax estimated payments you made during the prior year. Making estimated payments is usually only required for self-employed individuals or independent contractors.
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4
Total the amounts you are eligible to deduct from steps 1 through 3 to calculate your total deduction.
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5
Write the amount of your deduction on line 5 of Schedule A, the list of your itemized deductions and check the box next to 5a to signify the deduction is for income taxes.
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Tips & Warnings
If you claim the deduction for local income taxes, you can also deduct the cost of state income taxes with the same deduction.
If you claim the deduction for local income tax paid you are not allowed to deduct state and local sales tax paid.
