When the Tax Cuts and Jobs Act (TCJA) took effect in 2018, it suspended most federal miscellaneous itemized deductions subject to the 2% Adjusted Gross Income (AGI) floor through 2025. However, not all states followed suit. Some states have “decoupled” from the Internal Revenue Code (IRC) and continue to allow certain deductions the IRS has eliminated.
🔍 What Are Miscellaneous Itemized Deductions?
These include a variety of unreimbursed expenses that were once deductible if they exceeded 2% of AGI. Common examples include:
- Unreimbursed employee expenses (travel, uniforms, tools)
- Tax preparation fees
- Investment management and custodial fees
- Union dues and subscriptions to professional journals
- Hobby expenses (limited to hobby income)
For federal taxes, these were suspended by TCJA and made permanently non-deductible after 2025 under the One Big Beautiful Bill Act of 2025.
🏛️ What Does “Decoupling” Mean?
States that decouple from the federal tax code do not automatically conform to all federal tax law changes. Instead, they may choose to retain their own rules regarding deductions, income treatment, and credits. This allows some states to continue offering deductions that no longer exist on federal returns.
📌 States That Still Allow Miscellaneous Deductions
Here are examples of states that decoupled and continue to allow some miscellaneous itemized deductions:
- New York: Does not conform to the TCJA suspension of miscellaneous deductions. Taxpayers may still deduct unreimbursed employee expenses, investment fees, and union dues on their NY state return.
- California: Uses its own definition of adjusted gross income and itemized deductions. California allows unreimbursed employee expenses, investment expenses, and tax prep fees subject to 2% AGI limits.
- Hawaii: Also decoupled from TCJA for many provisions. Residents can continue claiming miscellaneous deductions, including expenses for employment and tax prep services.
- Minnesota: Applies its own AGI adjustments and deduction calculations and continues to allow some deductions removed at the federal level.
- Massachusetts: Does not adopt all federal itemized deduction rules. Certain job-related and investment-related deductions may still be available on state returns.
📊 Example Scenario
Example: Jane is a W-2 employee in New York who spends $3,000 per year on work-required travel and professional dues. While she cannot claim these expenses on her federal return, she may still deduct them on her NY state tax return if she itemizes.
🧾 How to Claim These on Your State Return
- Use your state’s itemized deduction worksheet or Schedule (such as NY Form IT-196 or CA Schedule CA).
- Apply the 2% AGI floor if your state still uses that threshold.
- Maintain documentation (receipts, invoices, mileage logs, etc.) for all claimed expenses.
- Don’t assume federal disallowance means state disallowance—rules vary widely by state.
📌 Why This Matters for Tax Planning
- If you live in a decoupled state and have significant miscellaneous expenses, itemizing on your state return may still reduce your tax burden—even if you take the standard deduction federally.
- Using tax software that accounts for state-specific rules (or working with a preparer) can ensure you don’t miss out on allowable deductions.
- Review your state’s conformity statutes each year, as some states adopt rolling or fixed conformity to federal law.
✅ Summary
Even though the IRS no longer allows most miscellaneous itemized deductions, states like New York, California, Hawaii, and Minnesota still do. These states have decoupled from federal law, enabling taxpayers to continue deducting unreimbursed employee expenses, investment fees, and more at the state level. If you live in one of these states, be sure to take advantage of the deductions still available to you—on your state return.
Need help understanding your state’s position on itemized deductions? Share your state and deduction types, and we’ll review what’s still allowed.
