Georgia Moving to a Flat Income Tax

Many Atlanta families and high net worth individuals invest significant time uncovering strategies designed to limit federal and state income taxes due. Tax planning focuses on reviewing tax law changes, updates to incentives and deductions, and other changes in areas where savings may be present. Although these activities are most common at year-end, many will make it a regular focus throughout the year. While tax planning is a useful process, it can be difficult to find significant savings each year. After all, the government relies on tax revenue to provide services and to make investments in community and other programs. However, significant savings can arise when significant changes to tax regulations are made as part of a tax reform effort. The good news is such an effort is currently underway in Georgia as Governor Kemp recently signed legislation that introduced a new flat tax rate. The change is set to be phased in over a several year period beginning in 2024. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

New Flat Tax

The new flat tax is expected to save Georgia taxpayers over $1 billion annually. However, the savings is spread amongst the various tax bracket and will vary widely depending on individual situations. The recently signed legislation calls for the elimination of the current six tax brackets to a single flat rate of 5.49% by 2024. Then starting in 2025 the rate will continue to decrease until it reaches 4.99% in 2029.

Below is a list of the annual tax reduction across the five year period, including:

• 2024: 5.49 percent
• 2025: 5.39 percent
• 2026: 5.29 percent
• 2027: 5.19 percent
• 2028: 5.09 percent
• 2029: 4.99 percent

Currently, tax rates in Georgia range from one percent to 5.75 percent.

A flat rate of 5.75 percent will save most Georgians a little money every year, from an estimated $27 per year for low-income earners to potentially hundreds of thousands of dollars for the wealthiest taxpayers, according to some critics.

If one of the below conditions aren’t met by December 1 in any year, phasing in the next lowest tax rate will be delayed by one year.

• The revenue estimate must be at least three percent higher than the current fiscal year.
• The prior year’s revenue collection must be less than each of the previous five fiscal years’ net tax revenue collection.
• The revenue shortfall does not exceed projected decreases because of the proposed tax rate reduction to occur the following year.

Although this is the largest tax cut in Georgia’s history, it’s not the only tax cut. As recently as 2018, state legislators voted to lower the top income tax rate from six percent to 5.75 percent. Another vote was supposed to happen in 2020 that would again lower the top rate to 5.5 percent, but it was delayed due to the pandemic.  

Since then, Georgia’s economy has fared well. So much so that most resident taxpayers are getting an extra, automatic refund.

Georgia now joins Iowa and Mississippi as the third state this year to amend its tax code for a flat rate. And according to the Tax Foundation, one of 16 other states implementing tax reform in the past 18 months.

Change to Georgia Personal Exemption Amounts

H.B. 1437 also increases the personal exemption amounts. Changes will take effect beginning on January 1, 2024.

Married Filing Jointly

• 2024: $18,500
• 2026: $20,000
• 2028: $22,000
• 2030: $24,000

Single filers can claim a deduction of $12,000. The deduction for dependents will be $3,000.

Tax Change Insights

There are pros and cons to this approach.

On the one hand, a statewide flat tax will make Georgia a more tax-friendly state for both residents and businesses. This is important, considering Georgia’s neighbors are either income tax-free or already have a lower rate. Additionally, most taxpayers will see some reduction in the amount they pay each year. The new tax law also eliminates the state’s “marriage penalty” with higher personal exemptions, so married couples will no longer see more of their income taxed compared to single filers.

The personal exemptions, while larger, aren’t indexed for inflation. This means their dollar value could decrease in coming years. Another consideration is that lowering taxes is almost always easier than raising them, and this change will cost the state a large sum of money. There is a budget surplus, but some of that amount has come from one-time pandemic relief funds. Luckily, a failproof has been added to the legislation that would prevent a new lower tax rate from going into effect if state revenue collections aren’t at a certain level. 

Contact Us

The transition to a flat rate tax is an opportunity for Atlanta families and high net worth individuals to pay less in state income taxes. However, since changes are gradually phased in over several years, it may be sometime before a meaningful tax savings is realized. If you have questions about the information outlined above or need assistance with a tax or accounting concern, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon