Clarifications Regarding the Deductibility of Federal Income Taxes

February 21, 2019

As in previous years, you can deduct up to $5,000 of federal income taxes paid on your Itemized Deductions Schedule, line 4. At the request of some tax practitioners, the instructions on Form 2, page 21, now include a list of the deductible federal income taxes. For example, the Self-Employment Tax is not on the list and is not deductible.

However, when you pay your federal taxes as you go, you often pay income taxes and other taxes together. You will not know how much federal income taxes you have paid until your federal Form 1040 is completed. As a result, if your federal tax payments were greater than your federal income taxes calculated on your federal return, the excess will include other taxes and/or an overpayment, neither of which can provide a tax benefit for Montana.


In the following example, the amount of federal income tax paid in 2018 that you can use to reduce Montana Taxable income is $4,000 ($11,000 – $6,000 – $1,000 = $4,000)

Federal wage withholding paid in 2018:
Federal estimated tax paid in 2018:
Total paid in 2018:
Deductible income tax reported on your 2018 Form 1040:
Other taxes and liabilities on your 2018 Form 1040:
Total liabilities for 2018:
$10, 000

If you determine that the overpayment ($1,000 in the example) was a payment based on an estimate of income taxes alone, you can still deduct this amount as an itemized deduction, provided the limit of $5,000 has not been reached. However, this amount would have to be recovered on the 2019 tax return, because you cannot receive a tax benefit from that payment for Montana income tax purposes.