Georgia General Assembly Reduces State Income Taxes
By Julian Fortuna
On March 1, 2018, the Georgia General Assembly adopted HB 918 which will significantly reduce income taxes payable by both individuals and corporations subject to taxation in Georgia. The major features of the bill are as follows:
- Reduction in Top Individual Income Tax Rate. HB 918 includes a two-phased reduction in the top individual income tax rate. Currently, the top rate of 6 percent applies to income above $7,000 for an individual and above $10,000 for a married couple filing jointly. The bill lowers that rate to 5.75 percent in 2019 and 5.5 percent in 2020. The second step down to 5.5 percent would require a joint resolution by Georgia lawmakers and the governor during the 2020 legislative session.
- Reduction in Corporate Income Tax Rate. Similar to the individual tax rate reductions, HB 918 includes a two-phased reduction in the corporate income tax rate. Phase one reduces the rate from 6.0 percent to 5.75 percent starting in 2019. The bill lowers that rate to 5.5 percent in 2020. The second step down to 5.5 percent would require a joint resolution by Georgia lawmakers and the governor during the 2020 legislative session.
- Doubling of Georgia’s Standard Deduction. HB 918 doubles the standard deduction for individuals to $4,600 from $2,300 for a single taxpayer and to $6,000 from $3,000 for a married couple filing jointly.
- Adoption of Federal Changes. With certain exceptions related to businesses as such some differences in the calculation of deductions for depreciation, net operating losses, interest expense, and certain international tax provisions, HB 918 adopts the changes to the Internal Revenue Code enacted by the Tax Cuts and Jobs Act of 2017.
What does this all mean for taxpayers in Georgia? The rate cuts and other changes are estimated to reduce overall income taxes by an estimated $330 million until December 31, 2025, at which time the rate cuts would expire. The rate cuts will, of course, not equally benefit all Georgians. Those who do not itemize deductions should benefit from the doubling of the standard deduction combined with the rate cuts. Corporations and high income individuals will benefit even more from the tax rate cuts.
However, some middle income Georgians may find that the rate cuts do not fully compensate them for the loss of itemized tax deductions. The federal changes enacted last year reduced or eliminated many itemized deductions and raised the standard deduction to $12,000 for singles and $24,000 for married taxpayers filing jointly. These changes will result in many middle income taxpayers moving from itemizing to claiming the standard deduction. As noted above, the standard deduction for individuals in Georgia was only raised to $4,600 for a single taxpayer and $6,000 for a married couple filing jointly.
Under Georgia law individual taxpayers may not itemize deductions unless they do so on their federal income tax return. For example, if a married couple has $20,000 of itemized deductions, they would likely claim the $24,000 standard deduction on their federal return because it exceeds their itemized deductions. However, if they did so, they would have to use the $6,000 standard deduction in Georgia even though it’s much lower than their $20,000 of itemized deductions. This is just one example of the many complicated decisions taxpayers will have to make under the new federal and state tax changes.
Governor Nathan Deal has said that he plans to sign the tax bill, so it will most likely become law in 2018.