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New Changes to Georgia’s Tax Law

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Big money news just came out of the Gold Dome. Georgia legislators recently passed some significant changes to the Georgia State tax code, in the form of substantial cuts for both residents and corporations. This is a historic overhaul and stands to save taxpayers billions of dollars over the next several years. (You may not have heard about what exactly the changes to the code will do for you. That’s because news about taxes from the Capitol has been overshadowed by the Delta fuel tax snub.)

The AJC recently reported House Speaker David Ralston as saying of the bill, “Georgians are going to get their tax relief.” Here’s how that relief looks.

Under the new bill (House Bill 918), the state’s income tax bracket – for taxpayers who have income above $7,000 for an individual and $10,000 for a married couple filing jointly –  decreases from 6% to 5.75% for 2019. There is also a provision which leaves open the option to reduce it further, down to 5.5%, in 2020.

As for the state standard deduction, this amount has doubled and will go into effect retroactively for tax year 2018. So, for individuals, the new deduction amount is $4,600, and for married couples filing jointly the deduction is $6,000.

Many companies doing business in Georgia scored a win, too. Corporate Income Tax cuts were part of the bill, with taxes going from 5.75% in 2019 and likely down to 5.5% in 2020.

This is all big news. We wrote before about how the Trump tax cuts could be hit or miss when it came to the shake out of your state taxes. Remember, the GOP tax plan doubled the standard deduction for many Americans. But there was a bit of disconnect when we considered state standard deductions that were markedly lower and where the tax codes contained a “mirror deduction requirement.”

To unravel this point, consider that, under the new federal plan, many Americans who were itemizers in the past would now just take the standard deduction. In certain states, if you take the federal standard deduction, you must take the state standard deduction, even if you would come out better having itemized for your state taxes. Put another way, some state laws prohibit itemizing state taxes when a taxpayer opts for the federal standard deduction.

In some states, like Georgia, taxpayers would fare better on federal taxes under the new tax law but may have felt a major pinch when they filed their state returns because the state standard deductions were so low.

We wrote about this very issue just a few weeks ago. To figure out who would be most impacted by this disconnect between federal and state standard deductions, I got to work with an army of CPAs and we ran some numbers. The group that stood to lose out to most, or the “borderline itemizers,” as we termed them, fell into a specific tax category. Here, an example is the best illustration of this group.

Consider a married couple, Sally and Tom, with $100,000 in combined income living in Georgia. They paid $2,000 in property taxes and had another $13,000 in itemized deductions, for a total of $15,000. If they choose to use the federal standard deduction when filing their taxes, this couple would save about $1,250. But, when they filed their Georgia taxes and took the previous deduction of just $3,000, they could end up paying around $720 in state taxes, which is likely more than they would have paid before the GOP tax plan when they would have itemized for both federal and state. Still, Sally and Tom would likely come out ahead, but their net tax reduction is only about $530.

Governor Deal and both the House and Senate caught wind of this tax conundrum. Despite news of how Trump’s tax plan could spell a real tax windfall for the State of Georgia, our lawmakers stepped up to protect Georgians against higher state tax bills.

Under the new bill, the highest bracket (which covers anyone with a full-time job, really) decreases ¼% in 2019, and more than likely another ¼% in 2020. For real-money-perspective, this translates into savings of about $500 for an income of $100,000. As for the doubling of the standard deduction, while still relatively low, the new $6,000 threshold could be worth about $165. (The math here is the increased amount of $3,000 times the tax rate of 5.5%.)

Add these two figures together for Sally and Tom, and we get $665 in savings – an amount that gets the “borderline itemizers” much closer to neutral on the stateside than they would have been before these changes.

Overall, this is a victory for hundreds of thousands (if not millions) of Georgia’s taxpayers. For those that choose to use the new federal standard deduction, we have a new state standard deduction that is inching closer to the federal amount. And for the vast majority of Georgians, their tax rate will decrease from 6% to 5.75%, and then (in all likelihood) again in 2020, down to 5.5%.

For families making about $100,000, this translates into roughly $650 in yearly savings. And, pulling the lens out further, over the next five years these changes will save GA taxpayers what could have been billions of dollars in additional taxes.

It’s a wonder more media outlets weren’t focusing on the bill. This is big news for Georgians’ pocketbooks and big news for the record books. Individual income tax rates have been the same in Georgia since 1937, and corporate income tax rates have been the same since 1969. Similarly, the standard deduction hasn’t moved since 1981.

But, as Lt. Gov. Casey Cagle told the AJC, “With the passage of this historic and sweeping income tax cut, Georgia families will have more take-home pay and greater opportunities.” When it comes to ushering in change and prospects for Georgia’s families, my vote is always “Yes.”

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