Definition
The SALT (State and Local Tax) deduction allows taxpayers who itemize to deduct state income taxes (or sales taxes) and property taxes from federal taxable income. Under OBBBA, the annual cap was raised from $10,000 to $40,000 ($40,400 for 2026, phasing down for incomes above $505,000) — a dramatic increase that significantly benefits homeowners in high-tax states.
Before OBBBA, the $10,000 cap meant that many California, New York, New Jersey, and Massachusetts taxpayers couldn't deduct most of their state taxes. At $40,000, a much larger portion becomes deductible, making itemizing worthwhile for far more people.
The SALT deduction is part of itemized deductions on Schedule A — it only applies if your total itemized deductions exceed the standard deduction.
How this affects your W-4
If you pay significant state income taxes and/or property taxes, recalculate your itemized deductions under the $40,400 (2026) SALT cap. If your new total exceeds the standard deduction, enter the excess in Step 4b to reduce withholding.
For a married homeowner with $38,000 in SALT and $12,000 in mortgage interest: total itemized = $50,000. Step 4b entry = $50,000 − $32,200 = $17,800.
See how salt deduction affects your withholding
Use the free W-4 calculator to calculate your exact withholding with your specific situation.
Open the W-4 Calculator →Read the guide
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Related terms
Itemized Deductions
Specific deductible expenses you list on Schedule A instead of taking the standard deduction.
Deductions Worksheet
The worksheet on the W-4 (page 4) whose line 15 total goes in Step 4(b): itemizing above the standard deduction, tips, overtime, car loan interest, seniors, student loan interest and more.
OBBBA Deductions
New deductions, available without itemizing, created by the One Big Beautiful Bill Act (signed in 2025) — for tips, overtime, seniors, and car loan interest — that apply to tax years 2025 to 2028.