Final answer:
A taxpayer can deduct personal state and local income taxes, and mandatory contributions to state disability or unemployment funds as itemized deductions on federal Schedule A, if itemizing provides a greater tax benefit than the standard deduction, subject to the $10,000 cap implemented by the TCJA.
Step-by-step explanation:
A taxpayer can include several types of payments as itemized deductions for state and local income taxes on Schedule A of their federal tax return. These payments include personal state and local income taxes, mandatory contributions to state disability or unemployment funds, and state and local income taxes paid.
The state taxes are deductible as an expense against federal taxable income. This is due to the fact that income tax systems in the U.S. allow for state and local income taxes paid to be accounted for when calculating federal tax liability. It should be noted that this only applies if the taxpayer chooses to itemize deductions, rather than taking the standard deduction, which may be more beneficial depending on the taxpayer's specific financial situation.
However, not all taxes paid to state and local governments are deductible. For instance, one cannot deduct Federal income taxes, social security taxes, or other taxes not directly related to income. Moreover, due to the Tax Cuts and Jobs Act (TCJA), there is a cap of $10,000 ($5,000 if married filing separately) on the combined amount a taxpayer can deduct for state and local income, sales and property taxes.