Georgia House Passes Flat Income Tax Rate for Individual Taxpayers

March 7, 2017

On March 1, 2017, the Georgia House of Representatives voted 126-40 to adopt HB 329 which would convert the current graduated-rate individual income tax into a single, 5.4 percent flat-rate tax. Georgia currently applies a progressive six rate structure with a top rate of 6 percent applicable to taxable income above $7,000 for single taxpayers, $5,000 for married filing separate and $10,000 for married taxpayers filing jointly. The proposed legislation includes an earned income tax credit designed to retain tax code progressivity for low and middle-income Georgians.

If the proposed legislation is enacted, Georgia would join eight other states with flat income taxes, which proponents say will keep the state competitive to facilitate investment and growth. Last year, the Georgia Senate passed similar legislation by a margin of 35-17, so there is reason to believe that HB 329 will make it to the Governor’s desk where it will possibly be enacted into law with an effective date of January 1, 2018. The cost of the proposal is estimated to be between $20 million and $154 million a year.

One somewhat obscure feature of the proposed legislation is that individual taxpayers who claim itemized deductions will be required to “add-back” the deduction for Georgia income taxes when figuring their Georgia taxable income to which the flat rate of 5.4 percent will apply. What that means is that for those taxpayers the top rate in Georgia will, in effect, only be reduced to 5.7 percent (halfway to 5.4 percent). For example, under current law, a taxpayer who itemizes deductions and has $100,000 of federal taxable income subject to tax in Georgia at the top rate of the 6 percent will owe $6,000 of Georgia tax on that income. Under the proposed legislation, assuming the 5.4 percent flat rate amount of $5,400 is withheld from wages or otherwise paid before year end, $292 of additional taxes would be owed to Georgia on the $100,000 of federal taxable income in order to make the total Georgia tax on that income equal to $5,692 (105,400*.054) thereby resulting in an effective Georgia tax rate of 5.7 percent. In any event, itemizers should still appreciate the “halfway” rate reduction.

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