Federal Judge Rules SALT Cap Is Not Unconstitutionally Coercive

    Oct 11, 2019 @ 02:00 AM / by Jeremy Piccoli

    The Lyceum in Alexandria, Virginia.

    What is the SALT cap?

    The Tax Cuts and Jobs Act (TCJA) that went into effect January 1, 2018 included a provision that limited the amount of state and local taxes (SALT) that are deductible for Federal tax purposes to $10,000 per year (previously uncapped). The SALT limit disproportionately impacted middle-to-high income residents of high-tax states that pay more than the new $10,000 limit.

    The lawsuits and the resulting verdict

    As a result, four states - New York, New Jersey, Connecticut, and Maryland - sued the federal government last year, arguing that the cap is ‘an unconstitutional assault’.

    On Monday, Federal District Court Judge J. Paul Oetken dismissed the case, noting in his decision, “The court recognizes that the SALT cap is in many ways a novelty, but the states have failed to persuade the court that this novelty alone establishes that the SALT cap exceeds Congress’s broad tax power.”


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    How did the SALT deductions become part of the TCJA?

    The cap on SALT deductions is one of the few provisions that offsets the cost of trillions of dollars in tax cuts resulting from the TCJA. AIRINC’s analysis found that the majority of taxpayers, even in high-tax states, received an overall Federal tax cut due to the increased standard deduction and changes to the tax rate schedule. The Tax Policy Center estimates only 6.3% of taxpayers have a higher liability compared to regulations prior to the TCJA.


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    What's next and how will this impact Global Mobility programs?

    With the ruling, Democrats in Congress will continue to work on legislation to remove or increase the cap before it is set to expire in 2025, but it is unlikely to pass through a Republican-controlled Senate. If you'd like to learn more about how this is impacting your Mobility programs, click below

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    Topics: International Tax, Mobility Policy, Insights and Experience, Tax, International Tax Summaries, International Tax Guide, SALT

    Jeremy Piccoli

    Written by Jeremy Piccoli

    Jeremy joined AIRINC in the fall of 2012 and is responsible for managing AIRINC’s International Tax Guide and tax calculator products, as well as consulting with clients. Prior to joining AIRINC, Jeremy spent more than 6 years with PricewaterhouseCoopers’ International Assignment Services practices in Hartford and Boston, providing tax compliance and consulting services to multinational companies and their expatriate population. He received his B.S. with a concentration in Accounting and a Master of Science in Accounting from the University of Connecticut. Jeremy is an Enrolled Agent, a federally licensed tax practitioner who specializes in taxation.