Can You Deduct Federal Taxes Paid for a Previous Year?

Federal income tax you paid for a previous year is not deductible on your federal return, and it doesn’t matter whether the payment was withholding, an estimated payment, a balance due with your return, or a deficiency from an audit. Deducting federal taxes paid for a previous year works only in narrower situations: state and local taxes you paid this year for a prior year can be deducted if you itemize, and half of any self-employment tax you paid remains deductible as an adjustment to income.

Why Prior-Year Federal Income Tax Isn’t Deductible

Section 275 of the Internal Revenue Code prohibits deducting federal income taxes, and the prohibition sweeps in every form the payment might take.¹ Withholding from your paycheck, quarterly estimates, an April balance due, and even a deficiency you owe after an amended return or audit all sit outside the deduction rules. The reason is structural: letting federal tax reduce federal taxable income would loop the tax back on itself.

The same bar covers the employee share of Social Security and Medicare tax withheld from wages, the Additional Medicare Tax on high earners, and any penalties or interest the IRS assesses on late or underpaid taxes.¹ Paying a prior-year federal tax bill this year does nothing for your current federal return.

Prior-Year State and Local Taxes You Pay This Year

State and local taxes are where a prior-year liability actually can generate a deduction. If you itemize on Schedule A, you can deduct state and local income taxes, real property taxes, and personal property taxes; you can substitute general sales taxes for income taxes but not claim both.²³

Timing is the key piece for prior-year situations. Nearly all individuals file as cash-basis taxpayers, which means you deduct a tax in the year the money leaves your hands, not the year the liability was for. A state income tax payment you send in April 2026 to settle your 2025 state return belongs on your 2026 federal return.² The same rule captures fourth-quarter state estimates mailed in January and any payment sent with a state filing extension: whichever calendar year you paid in is the year the deduction lands.

The SALT Cap in 2026

The Tax Cuts and Jobs Act originally capped combined state and local tax deductions at $10,000 ($5,000 for married filing separately) for 2018 through 2025. The One Big Beautiful Bill Act raised that cap to $40,000 ($20,000 for married filing separately) starting with the 2025 tax year, and both the cap and its income threshold rise 1% each year, putting the 2026 cap at roughly $40,400.²

The higher cap phases down at higher incomes. If your modified adjusted gross income tops $500,000 ($250,000 for married filing separately), the cap drops by 30 cents for every dollar over that line, but it cannot fall below $10,000 ($5,000 for married filing separately). After the 1% adjustment, the 2026 phase-down starts at roughly $505,000. A married couple filing jointly with $600,000 in modified AGI would see the cap reduced by about $28,500 (30% of $95,000), leaving roughly $11,900 available. Above about $606,000, the cap sits at the $10,000 floor.

The cap covers state and local income taxes, sales taxes, and property taxes on your personal residence, all combined. Property taxes on business or rental property are not subject to it; those come off on Schedule C or Schedule E as ordinary business expenses with no dollar limit.⁴

Half of Self-Employment Tax

Self-employed workers pay the full 15.3% Social Security and Medicare tax on net earnings: 12.4% for Social Security up to $184,500 in earnings for 2026, plus 2.9% for Medicare with no cap.⁵⁶ Because that 15.3% bundles both the employer and the employee side, the Code lets you deduct the employer-equivalent half as an adjustment to gross income on Schedule 1.⁷

You claim this whether or not you itemize, and it applies even when the self-employment tax you paid relates to a prior year’s earnings. It reduces your income tax only; it does not lower the self-employment tax itself.⁵

Foreign Income Taxes From a Prior Year

Taxes paid to a foreign government follow their own rules. You can deduct foreign income taxes as an itemized deduction on Schedule A, or claim a foreign tax credit on Form 1116, but you must pick one approach for all your foreign taxes in a given year.⁸

The credit is usually the better choice. It reduces tax dollar for dollar rather than reducing taxable income, it works whether you itemize or take the standard deduction, and unused amounts carry forward or back to other years. If you claim the credit, Section 275 blocks you from also deducting those same foreign taxes.¹

If You Later Get a State Refund on Taxes You Deducted

Deducting a prior-year state tax payment sets up a follow-up question. If you get a refund from the state on taxes you previously deducted, part or all of that refund may be taxable federal income under the tax benefit rule: a recovery of a previously deducted amount is taxable to the extent it actually reduced your tax in the earlier year.⁹¹⁰

If you took the standard deduction in the year you paid the state tax, the refund is not taxable, because you got no benefit from the payment to begin with. When your itemized deductions barely exceeded the standard deduction, or you had unused credits, or you were subject to the alternative minimum tax, only the slice of the refund that actually saved you tax gets included. Publication 525 walks through the arithmetic.⁹

Does Itemizing Even Pay Off?

None of the state, local, or foreign tax deductions help unless your total itemized deductions clear the standard deduction. For 2026, the standard deduction is $16,100 for single filers and married individuals filing separately, $32,200 for joint filers, and $24,150 for heads of household.¹¹

With the SALT cap now around $40,000 for most filers, more taxpayers in high-tax states will find itemizing worthwhile than under the old $10,000 limit. Add up your state income taxes (including any prior-year amount you paid this year), property taxes, mortgage interest, and charitable contributions; if the total beats your standard deduction, itemizing captures the value of the prior-year state payment. If it doesn’t, the timing of your state tax payments makes no difference to your federal return.

The self-employment tax deduction stands apart from all of this. It’s an adjustment to income, so you get it whether you itemize or take the standard deduction.⁷

1
Office of the Law Revision Counsel. 26 U.S. Code 275 – Certain Taxes
2
Internal Revenue Service. Topic No. 503, Deductible Taxes
3
Internal Revenue Service. Instructions for Schedule A (Form 1040) (2025)
4
Office of the Law Revision Counsel. 26 U.S. Code 164 – Taxes
5
Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
6
Social Security Administration. Contribution and Benefit Base
7
Internal Revenue Service. Topic No. 554, Self-Employment Tax
8
Internal Revenue Service. Foreign Tax Credit – Choosing to Take Credit or Deduction
9
Internal Revenue Service. Publication 525 (2025), Taxable and Nontaxable Income
10
Office of the Law Revision Counsel. 26 U.S. Code 111 – Recovery of Tax Benefit Items
11
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill