Proposed changes to federal tax deductions could impact several states

President Trump has proposed several options for tax reform, including significant changes to personal income taxes. According to recent analysis by the Pew Charitable Trusts, these changes could also have significant impacts on a number of states that link their tax codes to the federal code.

President Trump's plan would:

  • Condense the seven income brackets we have currently down to three 
  • Lower marginal tax rates
  • Eliminate the head-of-household status, the so-called "marriage penalty" and the personal exemption
  • More than double the standard deduction amounts

Twelve states currently use the federal rates to set their own standard deductions, which means changes at the federal level could directly impact state revenue. Eight states link to federal personal exemption provisions in addition to standard deduction provisions.

Although these 12 states currently link to these federal provisions, Pew notes that conforming to federal law is a state choice so this arrangement could change. “When federal law changes, state policymakers may decide to delink their tax codes to retain their original tax policies or avoid revenue disruptions, or they could choose to remain linked for simplicity, ease of administration and compliance reasons.” 

Read Pew's full analysis here: Changes to Certain Widely Claimed Federal Tax Deductions Could Affect Some States