Louisiana Amends EITC and Credit for Taxes Paid to Other States

Louisiana enacted legislation addressing taxes paid to another state, as well as individual tax credits, including the EITC. The legislation:

  • adds new and extends existing limitations on the credit for personal income taxes paid to another state;
  • creates a new deduction for entity-level taxes paid to another state by owners of pass-through entities (PTEs); and
  • increases the Louisiana earned income tax credit (EITC).

Credit for Taxes Paid to Other State

First, a credit is disallowed for taxes paid on income that is not subject to tax in Louisiana. Accordingly, the credit may not exceed the taxpayer’s Louisiana income tax liability, before credits, multiplied by a certain fraction. The fraction’s numerator is the taxpayer’s Louisiana tax table income attributable to other states where the taxpayer paid net income taxes. The fraction’s denominator is the taxpayer’s total Louisiana tax table income.

In addition, the following restrictions and limitations are extended to June 30, 2023:

  1. The credit is allowed only if the other state provides a similar credit for Louisiana income taxes paid on income derived from property located, services rendered, or business transacted in Louisiana;
  2. The credit is limited to the amount of Louisiana income tax that would have been imposed if the income earned in the other state had been earned in Louisiana; and
  3. The credit is not allowed for income taxes paid to a state that allows a nonresident a credit against the income taxes imposed by that state for taxes paid or payable to the state of residence.

These restrictions and limitations were set to expire on June 30, 2018.

Deduction for Entity-Level Taxes

Individual owners of pass-throughs that pay another state’s entity-level tax may now deduct their proportionate share of the tax paid. The tax must be based on net income included in the entity’s federal taxable income without any capital component.

In addition, the deduction is allowed only to the extent that the proportionate share of the tax paid to the other state is included in the owner’s Louisiana taxable income.

The deduction applies for entity-level taxes paid after 2017.

Earned Income Credit

The Louisiana EITC is increased from 3.5% to 5% of the federal credit for the 2019 through 2025 tax years.

Act 6 (H.B. 18), Laws 2018, Second Extraordinary Session, effective June 12, 2018, applicable as noted

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CCHTaxGroup

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