Are federal taxes deductible? On your federal income tax return, the federal income tax you pay is not deductible — the Internal Revenue Code specifically bars it. A narrower set of federal taxes can be deducted: self-employed workers can write off half of their self-employment tax, businesses can deduct employer-side payroll taxes and certain excise taxes, and foreign income taxes can be deducted or claimed as a credit. Separately, three states let residents subtract federal income tax paid when calculating state income tax.
Why Your Federal Income Tax Isn’t Deductible
Under 26 U.S.C. § 275, federal income taxes are on the list of taxes you cannot deduct on your federal return.1Office of the Law Revision Counsel. 26 USC 275 – Certain Taxes The bar covers income tax withheld from wages, the employee share of FICA withheld from your paycheck, and estate, gift, and excess profits taxes. It doesn’t matter whether you paid through withholding, quarterly estimates, or a balance due at filing.
The reasoning is mechanical. If federal income tax reduced taxable income, each dollar of tax would shrink the base it was calculated on, which would shrink the tax, which would shrink the deduction. Blocking the deduction keeps the calculation stable. Other deductions — mortgage interest, charitable gifts, medical costs above the threshold — remain available; federal income tax simply isn’t one of them.
States That Let You Deduct Federal Income Tax
Three states let residents subtract some or all of their federal income tax when computing state income tax: Alabama, Missouri, and Oregon. Louisiana’s deduction expired at the end of 2021.2Louisiana Department of Revenue. Does the Constitutional Amendment Eliminate the Federal Income Tax Iowa also formerly offered the deduction and no longer does.
Alabama
Alabama allows an unlimited deduction for federal income taxes paid. There’s no dollar cap, so your full federal liability reduces Alabama taxable income.
Missouri
Missouri’s deduction is capped at $5,000 for single filers and $10,000 for joint filers.3Missouri Revisor of Statutes. Revised Statutes of Missouri, RSMo Section 143.171 It’s based on federal tax actually paid for the year, not on amounts withheld from your paychecks.4Missouri Department of Revenue. Federal Income Tax Deduction If you claimed the earned income credit, that amount is subtracted from your federal tax before you compute the Missouri deduction.
Oregon
Oregon lets you subtract up to $8,500 in federal income taxes paid for tax year 2025, with the cap indexed for inflation. The full subtraction is available to single filers with adjusted gross income under $125,000 and joint filers under $250,000. It phases down at higher incomes and disappears entirely above $145,000 single or $290,000 joint. Married filing separately is limited to half the cap.5Oregon Department of Revenue. 2025 Publication OR-17, Oregon Individual Income Tax Guide
If you live in one of these states, keep your finalized federal return or transcript when preparing state forms. The calculation typically relies on tax actually paid, not on W-2 withholding.
The Self-Employment Tax Deduction
Self-employed workers pay both the employer and employee shares of Social Security and Medicare, a combined 15.3%: 12.4% for Social Security on earnings up to $184,500 in 2026, and 2.9% for Medicare on all net earnings.6Social Security Administration. Contribution and Benefit Base7Social Security Administration. Social Security and Medicare Tax Rates The self-employment tax is computed on Schedule SE.
Federal law lets you deduct 50% of your self-employment tax from gross income.8Office of the Law Revision Counsel. 26 USC 164 – Taxes – Section (f) It’s an above-the-line deduction claimed on Schedule 1 of Form 1040, so you don’t need to itemize. Section 275’s bar on deducting federal taxes specifically carves this one out.1Office of the Law Revision Counsel. 26 USC 275 – Certain Taxes
Because the deduction lowers adjusted gross income, it can also help you qualify for income-based credits and deductions that phase out at higher AGI.9Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) It reduces your income tax only. It does not reduce the self-employment tax itself or your net earnings from self-employment.
One boundary to note. High earners owe an additional 0.9% Medicare tax on self-employment income above $200,000 for single filers, $250,000 for joint filers, and $125,000 for married filing separately.10Internal Revenue Service. Topic No. 560, Additional Medicare Tax The 50% deduction does not apply to this extra 0.9%.
Federal Taxes a Business Can Deduct
Businesses can write off several federal taxes as ordinary operating expenses, whether they file as a sole proprietor, partnership, or corporation.
Employer Payroll Taxes
Employers pay 6.2% of each employee’s wages for Social Security and 1.45% for Medicare, matching what’s withheld from the employee’s paycheck.11Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates The employer share is fully deductible. Social Security applies only to wages up to $184,500 per employee in 2026; Medicare has no wage cap.6Social Security Administration. Contribution and Benefit Base
Federal Unemployment Tax (FUTA)
Employers pay federal unemployment tax at 6.0% on the first $7,000 of each employee’s annual wages.12Internal Revenue Service. Topic No. 759, Form 940 – Employers Annual Federal Unemployment (FUTA) Tax Return Paying state unemployment taxes on time and in full earns a credit of up to 5.4%, dropping the effective federal rate to 0.6%, or a maximum of $42 per employee per year.13U.S. Department of Labor. Unemployment Insurance Tax Topic The FUTA payment after credits is deductible.
Federal Excise Taxes
Federal excise taxes tied to business operations, such as fuel taxes, heavy vehicle use taxes, and environmental taxes, are deductible when they relate directly to producing income or running the business. They’re a genuine cost of doing business, which is why they’re treated differently than personal income tax.
Estate Tax Attributable to Inherited Income
Federal estate tax is generally non-deductible under § 275, with one exception worth knowing about. If you inherit “income in respect of a decedent” — income the deceased earned but had not yet received, such as unpaid wages, retirement account distributions, or deferred annuity payments — you may deduct a portion of the federal estate tax paid because of those income items.14Office of the Law Revision Counsel. 26 USC 691 – Recipients of Income in Respect of Decedents
The deduction is proportional. You figure the share of total estate tax caused by including those income items in the estate, then deduct the portion matching the income you actually report on your own return that year.15Internal Revenue Service. Publication 559 (2025), Survivors, Executors, and Administrators If you inherit a traditional IRA distribution that was subject to both estate tax and income tax, for example, you calculate the estate tax attributable to that distribution and deduct it in the year you include the distribution in your income. That keeps the same money from being fully taxed twice.
Foreign Income Taxes
Income taxes paid to a foreign country give you a choice on your U.S. return: claim them as an itemized deduction on Schedule A, or take a dollar-for-dollar credit on Form 1116. The credit is usually the larger benefit because it reduces tax owed directly, not just taxable income.16Internal Revenue Service. Foreign Tax Credit
Taking the deduction requires itemizing, so you give up the standard deduction. You also generally can’t split the choice: if you take the credit for taxes paid to one country, you take the credit for foreign taxes paid to every country that year. And if you exclude foreign earned income or housing costs under the foreign earned income exclusion, you cannot claim a credit or deduction for taxes paid on the excluded amount.